Schweser study notes, book 3 (FSA), page 82, question 8, explanation in answer to question: “Accelerated depreciation will result in higher depreciation in the early years and lower depreciation in the later years compared to the straight-line method. Total depreciation expense will be the same under both methods. The book value would be higher in the later years using straight line depreciation, so the loss from scrapping the equipment would be less compared to an accelerated method like declining balance.” It is the last sentence of the above that seems incorrect to me. Straight line would indeed lead to higher residual book value in the later years, but that would mean that the loss on a scrapping (which I read to mean selling for whatever remaining value, or even simply disposing of the asset), would be more, not less, than according to a method such as declining balance. Am I understanding this correctly?
The salvage value it is sold for is not a loss, it is money gained upon disposal. Hence, this is why you subtract the residual value from the book value when depreciating SL. Declining balances do not utilize a salvage value.
Dep X = cost - salvage/ years useful life book vlaue of asset = cost - accumulated depreciation. try to imagine the PPE account on the balance sheet. if you depreciate more, the book value gets smaller and smaller. companies use acc depn for tax reasons and use SL for the income stmt (what it shows to wall Street)
daj, let them breath:) They’ll soon be heat with DTL/DTA:)
lol, map1 : ) - this place will be insane soon – when are we migrating to level II???
lolz !!! DTL…DTA … aah thank god we got rid of them …
daj224 Wrote: ------------------------------------------------------- > lol, map1 : ) - > > > > this place will be insane soon – when are we > migrating to level II??? Pretty soon. Not started yet, I have a complete 2008 Schweser package, not registered yet for L2. Still cleaning up the level I papers/books/notes/cards mess (my husband throw them all in a box the day of the exam and never touched it until today). And I really don’t think I can joke around with those cranky people over there:)