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Quiz No-02
Quiz No-02
Four Methods
Straight Line
Declining Balance
Sum of the Years Digits
Units of Production
Straight Line
Annual Depreciation = Cost Salvage Value
Years of Useful Life
Example: You purchase a truck that costs
$19,000. It has a salvage value of $5,000
and a useful life of 5 years. What is the
annual depreciation?
Annual Depreciation = 19,000-5,000
5
Annual Depreciation = $2,800
Declining Balance
Declining balance is calculated on either 1.5 X
0r 2 X the straight line amount (Percentage)
Straight line percentage is calculated by
dividing 1 by the number of years of useful
life.
Each consecutive year, the depreciation
amount is calculated by multiplying the
percentage by the book value (Cost
accumulated depreciation)
Book Value
Depreciation Annual
Depreciation
Rate
Accumulated
Depreciation
19,000
40%
7,600
7,600
11,400
40%
4,560
12,160
6,840
1840
15,000
5,000
15,000
5,000
15,000
Year
Depreciable
Cost
Years
Fraction
Annual
Depreciation
Accumulated
Depreciation
19,000
5/15
6,333
6,333
19,000
4/15
5,067
11,400
19,000
3/15
2,600
14,000
19,000
19,000
Units of Production
Johnson Company purchases a machine for $500,000.
The machine is expected to produce 2,000,000 units. In
the first year the machine produced 400,000 units.
Accumulated Depreciation
Depreciation Expense
Temporary Account
Closed at end of fiscal year
Income Statement Account
Key Terminology
Breakeven Formula
Fixed Costs
*Contribution per unit
*Contribution per unit = Selling Price per unit Variable Cost per
unit
Breakeven Chart
Margin of Safety
Example 1
Using the following data, calculate the
breakeven point and margin of safety in
units:
Selling Price = 50
Variable Cost = 40
Fixed Cost = 70,000
Budgeted Sales = 7,500 units
Example 1: Solution
Target Profits
Example 2
Using the following data, calculate the level
of
sales required to generate a profit of
10,000:
Selling Price = 35
Variable Cost = 20
Fixed Costs = 50,000
Example 2: Solution
Contribution = 35 20 = 15
Level of sales required to generate profit of
10,000:
50,000 + 10,000
15
4000 units
Marginal