Grade 12 Math: Understanding Depreciation

Grade 12 Math: Understanding Depreciation

Read each question carefully and provide your answers in the space provided. Show all your work for calculations.

1. Define depreciation in your own words. Why is it important for businesses to account for depreciation?

2. Which depreciation method charges an equal amount of depreciation expense over the asset's useful life?

3. The original cost of an asset minus its accumulated depreciation is known as its  .

4. Salvage value is the estimated   an asset will be worth at the end of its useful life.

5. A company purchases a machine for $50,000. It has an estimated useful life of 5 years and a salvage value of $5,000. Calculate the annual depreciation expense using the straight-line method.

6. The declining balance method of depreciation results in a higher depreciation expense in the later years of an asset's life.

7. Consider the following graph showing the book value of an asset over its useful life. Based on the curve, which depreciation method was likely used?

8. Discuss how depreciation affects a company's financial statements (income statement and balance sheet) and its tax liability. Provide a brief explanation for each.