The most com­mon Depre­ci­a­tion meth­ods are the straight-line Depre­ci­a­tion method, the accel­er­at­ed Depre­ci­a­tion method, and the declin­ing bal­ance Depre­ci­a­tion method. Depre­ci­a­tion is the process of allo­cat­ing the cost of an asset over its use­ful life. The objec­tive of Depre­ci­a­tion account­ing is to match the expense of using an asset against its rev­enue.

Our goal is to deliv­er the most under­stand­able and com­pre­hen­sive expla­na­tions of finan­cial top­ics using sim­ple writ­ing com­ple­ment­ed by help­ful graph­ics and ani­ma­tion videos. At Finance Strate­gists, we part­ner with finan­cial experts to ensure the accu­ra­cy of our finan­cial con­tent. Accoun­tants use the infor­ma­tion to make deci­sions by ana­lyz­ing data and trends. This infor­ma­tion can come from Finan­cial State­ments, inter­nal reports, sur­veys, and oth­er sources. By ana­lyz­ing this data, accoun­tants can make informed deci­sions to help the com­pa­ny achieve its goals. If you have dif­fi­cul­ty answer­ing the fol­low­ing ques­tions, learn more about this top­ic by read­ing our Depre­ci­a­tion (Expla­na­tion).

  1. There are many dif­fer­ent ways to cal­cu­late Depre­ci­a­tion, but the most com­mon approach is the straight-line Depre­ci­a­tion method.
  2. As we have cov­ered Depre­ci­a­tion and its dif­fer­ent meth­ods in past, it is the right time to do some quizzes to refresh your mem­o­ries and under­stand­ing.
  3. The arti­cles and research sup­port mate­ri­als avail­able on this site are edu­ca­tion­al and are not intend­ed to be invest­ment or tax advice.
  4. Imag­ine you have a mobile phone that costs 5,000 & has a life of two years.

Oth­er ques­tions ask you about fac­tors involved in an asset’s depre­ci­a­tion. The arti­cles and research sup­port mate­ri­als avail­able on this site are edu­ca­tion­al and are not intend­ed to be invest­ment or tax advice. All such infor­ma­tion is pro­vid­ed sole­ly for con­ve­nience pur­pos­es only and all users there­of should be guid­ed accord­ing­ly. In account­ing, deci­sion-mak­ing is the process of choos­ing between two or more cours­es of action to achieve the desired out­come. Fac­tors that should be con­sid­ered when mak­ing deci­sions include the company’s finan­cial posi­tion, Cash Flow, prof­itabil­i­ty, and busi­ness strat­e­gy.

Where Should We Send Your Answer?

Take this quiz to under­stand more about depre­ci­a­tion account­ing. A finan­cial pro­fes­sion­al will offer guid­ance based on the infor­ma­tion pro­vid­ed and offer a no-oblig­a­tion call to bet­ter under­stand your sit­u­a­tion. Our team of review­ers are estab­lished pro­fes­sion­als with decades of expe­ri­ence in areas of per­son­al finance and hold many advanced degrees and cer­ti­fi­ca­tions. First, among types of depre­ci­a­tion meth­ods is the straight-line method, also known as the Orig­i­nal cost method, Fixed instal­ment method, and Fixed per­cent­age method.

Do you own a business?

For mul­ti­ple-choice and true/false ques­tions, sim­ply press or click on what you think is the cor­rect answer. For fill-in-the-blank ques­tions, press or click on the blank space pro­vid­ed. The per­cent­age, at which the shrink hap­pens, remains fixed, how­ev­er, the amount of depre­ci­a­tion dimin­ish­ing year after year. Use this quiz/worksheet com­bi­na­tion to test your knowl­edge of meth­ods of depre­ci­a­tion. To pass the quiz, you will need to be famil­iar with the meth­ods and be able to apply them.

Amor­ti­za­tion is also used to allo­cate the cost of a bond’s pre­mi­um or dis­count over the bond’s life. Ask a ques­tion about your finan­cial sit­u­a­tion pro­vid­ing as much detail as pos­si­ble. Your infor­ma­tion is kept secure and not shared unless you spec­i­fy. Our mis­sion is how to become quick­books proad­vi­sor to empow­er read­ers with the most fac­tu­al and reli­able finan­cial infor­ma­tion pos­si­ble to help them make informed deci­sions for their indi­vid­ual needs. This team of experts helps Finance Strate­gists main­tain the high­est lev­el of accu­ra­cy and pro­fes­sion­al­ism pos­si­ble.

How does depreciation affect the balance sheet of a business?

It means 2,500 worth of val­ue will dis­ap­pear per year due to day-to-day usage (50%). This is the depre­ci­a­tion per­cent­age & 2,500 is the depre­ci­a­tion amount. Auto-grad­ing quizzes and tests with detailed reports and ana­lyt­ics. Yes, the IRS has sev­er­al spe­cial Depre­ci­a­tion rules for busi­ness­es. There are many dif­fer­ent ways to cal­cu­late Depre­ci­a­tion, but the most com­mon approach is the straight-line Depre­ci­a­tion method. Under this approach, the cost of an asset is divid­ed by its esti­mat­ed use­ful life to come up with a Depre­ci­a­tion expense per year.

Accoun­tants use the infor­ma­tion to make deci­sions by ana­lyz­ing data and trends to make informed deci­sions to help the com­pa­ny achieve its goals. Com­pa­nies use var­i­ous­meth­ods of depre­ci­a­tion­to account for the depre­ci­a­tion expense. As we have cov­ered Depre­ci­a­tion and its dif­fer­ent meth­ods in past, it is the right time to do some quizzes to refresh your mem­o­ries and under­stand­ing. We have pre­pared some MCQs (Mult­ple Choice Ques­tions) that you will find very good for your prepa­ra­tion in exams as well. To cal­cu­late depre­ci­a­tion, you should use the straight-line method. Sub­tract the sal­vage amount from the asset cost and divide the bal­ance by the num­ber of peri­ods in the asset’s prac­ti­cal life.

Under straight iine method, depreciation is calculated on

Depre­ci­a­tion is a reduc­tion in the val­ue of a tan­gi­ble fixed asset due to nor­mal usage, wear and tear, new tech­nol­o­gy, or unfavourable mar­ket con­di­tions. Unlike amor­ti­za­tion, which is applied to intan­gi­ble assets, depre­ci­a­tion is applic­a­ble to tan­gi­ble assets. Some­one on our team will con­nect you with a finan­cial pro­fes­sion­al in our net­work hold­ing the cor­rect des­ig­na­tion and exper­tise. When mak­ing deci­sions in account­ing, it is essen­tial to con­sid­er all rel­e­vant fac­tors. Some of the fac­tors that may be con­sid­ered include the company’s finan­cial posi­tion, Cash Flow, prof­itabil­i­ty, and busi­ness strat­e­gy.

How confident are you in your long term financial plan?

Test your knowl­edge of depre­ci­a­tion by answer­ing the 10 short ques­tions giv­en below. We rec­om­mend attempt­ing to answer each ques­tion your­self before reveal­ing the answer. We fol­low strict eth­i­cal jour­nal­ism prac­tices, which includes pre­sent­ing unbi­ased infor­ma­tion and cit­ing reli­able, attrib­uted resources. Com­mon account­ing deci­sion-mak­ing mod­els include the ratio­nal deci­sion mod­el, the incre­men­tal deci­sion mod­el, and the sat­is­fic­ing deci­sion mod­el.

If you can answer every ques­tion cor­rect­ly, it will be excel­lent prepa­ra­tion for your exams, inter­views, and pro­fes­sion­al work. Test your under­stand­ing of Depre­ci­a­tion con­cepts with Study.com’s quick mul­ti­ple choice quizzes. All quizzes are paired with a sol­id les­son that can show you more about the ideas from the assess­ment in a man­ner that is relat­able and unfor­get­table. In Sim­ple Terms – Depre­ci­a­tion is when an asset los­es val­ue over time. This can be due to nor­mal wear & tear, out­dat­ed tech­nol­o­gy, etc. Imag­ine you have a mobile phone that costs 5,000 & has a life of two years.

Assets such as plant and machin­ery, fur­ni­ture, build­ing, vehi­cle, etc. which are expect­ed to last more than one year, but not for infin­i­ty, are sub­ject to such reduc­tion. It is an allo­ca­tion of the cost of a fixed asset in each account­ing peri­od dur­ing its expect­ed time of use. Depre­ci­a­tion is used for tan­gi­ble assets such as prop­er­ty, plant, and equip­ment, while amor­ti­za­tion is used for intan­gi­ble assets such as patents and copy­rights.

Each of these mod­els has its own set of steps that should be fol­lowed when decid­ing. Harold Averkamp (CPA, MBA) has worked as a uni­ver­si­ty account­ing instruc­tor, accoun­tant, and con­sul­tant for more than 25 years. He is the sole author of all the mate­ri­als on AccountingCoach.com. The sim­plest & most used method of charg­ing such a reduc­tion is the straight-line method. If you find any ques­tions dif­fi­cult, vis­it the depre­ci­a­tion chap­ter on our web­site to find out the nec­es­sary details about depre­ci­a­tion (see the Finan­cial Account­ing sec­tion). Receive instant access to our grad­ed Quick Tests (more than 1,800 unique test ques­tions) when you join Account­ing­Coach PRO.

None of the answers are cor­rect; land can nev­er be depre­ci­at­ed. We now offer 10 Cer­tifi­cates of Achieve­ment for Intro­duc­to­ry Account­ing and Book­keep­ing.

Test your knowl­edge of account­ing prin­ci­ples with this quiz on depre­ci­a­tion. Explore the con­cepts of asset val­ue reduc­tion and cost allo­ca­tion, and enhance your under­stand­ing of the match­ing prin­ci­ple in account­ing. One plat­form to cre­ate and dis­trib­ute quizzes and tests effort­less­ly. As a mem­ber, you’ll also get unlim­it­ed access to over 88,000 lessons in math,
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Finance Strate­gists is a lead­ing finan­cial edu­ca­tion orga­ni­za­tion that con­nects peo­ple with finan­cial pro­fes­sion­als, prid­ing itself on pro­vid­ing accu­rate and reli­able finan­cial infor­ma­tion to mil­lions of https://intuit-payroll.org/ read­ers each year. Accord­ing to the dimin­ish­ing val­ue method, it is charged on reduc­ing bal­ance & at a fixed rate. In this case, the writ­ten down val­ue is spread between the use­ful life of the asset.