Depreciation Of Fixed Assets: The Straight Line Essay

Length: 2 pages Sources: 2 Subject: Accounting Type: Essay Paper: #59732598 Related Topics: Fixed Costs, Cost Accounting, Accounting
Excerpt from Essay :

Depreciation of Fixed Assets: The Straight Line and Double Declining Methods

A tractor acquired on January 4 of the current year at a cost of $100,000 has an estimated life of 10 years. Assuming that it has a residual value of $10,000, determine the depreciation expense in the current year using the straight-line method and the double-declining method.

Determine the Depreciation Expense for the current year using the a) Straight line method and b) Double declining balance method. Show your solution.

The matching principle of accounting requires that for every period of time the owners enjoy the use of an asset, the costs incurred should be allocated as expenses (Albrecht et al., 2008). This is because as fixed assets, with the exception of land, are used, they are less able to provide the same services as time goes by. Depreciation is one such allocation process, and it is the decrease in the value of a fixed asset due to continuous use. It may be caused by wear and tear brought about by overuse or extreme weather, or caused by obsolescence, which occurs when the asset is no...


Among the various methods of depreciation, the straight line and the double declining method are the most popular.

a) The straight line method

The straight depreciation method charges the cost of a particular asset uniformly over the useful life of a given asset. Using this method, owners will pay the same amount in depreciation expenses for every year they use the asset (Warren, Reeve and Duchac, 2013). The formula for calculating an assets annual depreciation using this method is as follows:

Annual Depreciation = (Cost -- Residual Value) / the useful life of the asset.

The tractor in the example above has an initial cost of $100,000, an estimated useful life of 5 years and a salvage value of $10,000.

Therefore, the depreciation for the current year is calculated as:

($100,000-$10,000)/10 years= $9,000

For each year they use the tractor, they will be paying a depreciation expense of $9,000.

b) The double declining method

As opposed to the straight line method, the double declining method, also known as the accelerated depreciation method, involves a higher depreciation charge (Albrecht et al., 2008). Over the useful life of the asset, owners have to pay a declining periodic expense for that particular asset. This method involves multiplication of…

Sources Used in Documents:


Albrecht, W., Stice, E.K., Stice, J.D & Swain, M.R. (2008). Accounting: Concepts and Applications. Mason, OH: Thomson

Warren, C.S., Reeve J. M & Duchac, J.E. (2013). Financial Accounting. Mason, OH: Cengage Learning.

Cite this Document:

"Depreciation Of Fixed Assets The Straight Line" (2015, February 22) Retrieved January 27, 2022, from

"Depreciation Of Fixed Assets The Straight Line" 22 February 2015. Web.27 January. 2022. <>

"Depreciation Of Fixed Assets The Straight Line", 22 February 2015, Accessed.27 January. 2022,

Related Documents
Dispose of Plant Assets From
Words: 664 Length: 2 Pages Topic: Accounting Paper #: 22789451

Straight Line Depreciation -- an equal depreciation amount each year; 2. Units of Activity-- depreciation is based on asset's productivity rather than time passage; 3. Declining Balance -- an accelerated method which uses a fixed percentage of the asset's declining book value each year. An asset may need to be replaced, bought or sold when it has outlived its useful life. For example, this can occur with trucks used in transporting goods

Leasing Assets Vs. Buying. The Question of
Words: 2852 Length: 10 Pages Topic: Economics Paper #: 86844252

leasing assets vs. buying. The question of whether to buy an asset or to lease an asset is quite complex. Indeed, the answer is not always a black and white, straight response. Often, there is a grey area when researching whether to purchase or lease. For instance, if one wishes to purchase a house and live within the residence for two years, the residence can then be rented out and

Pepsico Annual Report Analysis Company Overview Pepsi
Words: 1977 Length: 6 Pages Topic: Business Paper #: 11405606

PepsiCo Annual Report Analysis Company Overview Pepsi Beverages Company (PBC) is a global beverage company popularly known as PepsiCo. The company operates in several countries in North America, South America, Europe, Asia, Africa and Middle East. Founded in 1898, the company operates with diverse portfolios, which include some of the world's widely recognized brands such as Pepsi, Dr. Pepper, Mountain Dew, Aquafina, Lipton, Muscle Milk and ROCKSTAR. Objective of this paper is to

Amazon's Cash Cycle So Much Shorter Than
Words: 818 Length: 2 Pages Topic: Economics Paper #: 37655552

Amazon's cash cycle so much shorter than that of competitor Barnes & Noble? How does this comparison affect financial management decisions of other retailers? There are several reasons which explain why the Amazon Company has a shorter cash cycle than its competitor Barnes & Noble. First and foremost, Amazon is a much bigger company than Barnes & Noble both in terms of income and in the number of products that

Financial Analysis Oracle Sells Software for Database-Management
Words: 1522 Length: 5 Pages Topic: Business Paper #: 91140530

Financial Analysis Oracle sells software for database-management and network products, application-development productivity tools, and end-user applications. Its principal product, the Oracle relational database-management system, runs on supercomputers, mainframes, minicomputers, microcomputers, and personal computers. The firm also offers consulting and systems-integration services. Foreign sales make up about 50% of revenue. Oracle sees the wisdom in managing business data. Oracle also offers business applications for data warehousing, customer relationship management, and supply chain management.

Analyzing Pro Forma Statements
Words: 919 Length: 2 Pages Topic: Economics Paper #: 49952861

Accounting Pro Forma Forecasts for XYZ Company XYZ Company wishes to increase sales. There are different strategies which are available. One of the most straightforward approaches to increase sales is to increase the marketing budget with the aim of increasing total sales. As long as the firm has sufficient capacity for the increase, there will not be any need for capital investment. However, as production and sales increase, many other costs will