Question

How is accrued depreciation estimated?

A.) Long-term and short-term

B.) Accrued and arrears

C.) Directly and indirectly

D.) Forward and reverse

Answer 1

Accrued depreciation is estimated using the straight-line method by dividing the total cost of an asset by its estimated useful life. The amount calculated represents the annual depreciation expense.

Step-by-step explanation:

Accrued depreciation is estimated using the straight-line method. This method involves dividing the total cost of an asset by its estimated useful life to determine the yearly depreciation. The calculation is: Depreciation Expense = (Total Cost - Salvage Value) / Useful Life.

For example, if a company purchases a piece of machinery for $10,000 with a useful life of 5 years and a salvage value of $2,000, the annual depreciation expense would be ($10,000 - $2,000) / 5 = $1,600.

Accrued depreciation is recorded as an expense on the income statement and accumulated on the balance sheet as a contra-asset account, reducing the carrying value of the asset over time.