ACCT 1A Lecture Notes - Lecture 9: Book Value, Historical Cost, Financial Statement

• School: Irvine Valley College
• Department: Accounting
• Course: ACCT 1A
• Professor: urell

Document Summary

Assume you are analyzing two companies that are identical except that one uses accelerated depreciation and the other uses the straight line method. The accelerated methods report higher depreciation expense and therefore lower net earnings during the early years of the life of an asset. In later years, this effect reverses, companies that use accelerated depreciation report lower depreciation expense and a higher net earnings during the later years of an asset"s life compared to those using the straight line method. When the curve for the accelerated method falls below the curve for the straight line method, the accelerated method produces higher net earnings than the straight-line method. Note: the total depreciation of the asset over its useful life should be the same for each period. Depreciation is based on two estimates useful life and residual value. These estimates are made at the time a depreciable asset is acquired.