Crash Course in Accounting and Financial Statement Analysis, Second Edition

Depreciation Expense

Depreciation is a method by which the cost of long-term fixed assets (purchases that are expected to provide benefits for the company for a period over one year) is spread over a future period (number of years) when these assets are expected to be in service and help generate revenue for a company. Depreciation quantifies the wear and tear (from use and passage of time) of the physical asset through a systematic decrease (depreciation) of the assets’ book (historical) value.

Depreciable Fixed Assets Include: Plants Machinery Equipment Furniture Fixtures Leasehold improvements Land is a fixed asset but is not depreciated.

Major Asset Classes and Their Typical Useful Lives Building and improvements 5–50 years Fixtures and equipment 5–12 years Transportation equipment 2–5 years Internally developed software 3 years Land Not depreciated

9. Depreciation

Exercise Q1: Which of the following need to be depreciated? Warehouse Administrative wages Office furniture Power plant Land used to ...