Podcast
Questions and Answers
Which of the following is an example of a non-current asset?
Which of the following is an example of a non-current asset?
What is the other name for non-current assets?
What is the other name for non-current assets?
Which of the following is typically classified as a current asset?
Which of the following is typically classified as a current asset?
How are current assets different from non-current assets?
How are current assets different from non-current assets?
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Which of the following is a characteristic of Property, Plant, and Equipment (PPE)?
Which of the following is a characteristic of Property, Plant, and Equipment (PPE)?
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What is depreciation in accounting?
What is depreciation in accounting?
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Which factor affects the calculation of depreciation?
Which factor affects the calculation of depreciation?
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How is the annual depreciation expense calculated under the straight-line method?
How is the annual depreciation expense calculated under the straight-line method?
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Which method of depreciation results in higher early years depreciation?
Which method of depreciation results in higher early years depreciation?
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What does the salvage value of an asset represent?
What does the salvage value of an asset represent?
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Why do companies use depreciation?
Why do companies use depreciation?
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Which financial metric is directly affected by the depreciation method used?
Which financial metric is directly affected by the depreciation method used?
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Study Notes
Asset Classification
- Non-current assets, also known as long-term assets, include land, as it is not expected to be used or converted into cash within a year.
- Current assets, on the other hand, are expected to be used or converted into cash within a year and include inventory, cash, and accounts receivable.
Property, Plant, and Equipment (PPE)
- PPE are tangible assets, such as equipment, buildings, and land, that are used in business operations and are depreciated over their useful lives.
- They are not held for resale and are not intangible assets.
- They are classified as non-current assets.
Depreciation
- Depreciation is the decrease in asset value over time, representing the allocation of the asset's cost to the periods in which it is used.
- Depreciation expense is reported on the income statement.
- Factors that affect the calculation of depreciation include the cost of the asset, salvage value, and useful life, but not market demand.
Depreciation Methods
- The straight-line method calculates annual depreciation expense by dividing the cost of the asset by its useful life.
- The double-declining balance method results in a higher depreciation expense in the early years of an asset's life.
- The units-of-production method and sum-of-the-years'-digits method are other methods of depreciation.
Salvage Value
- The salvage value of an asset represents the amount the asset can be sold for at the end of its useful life.
Purpose of Depreciation
- Companies use depreciation to match the cost of an asset with the revenue generated by the asset, thereby reducing taxable income.
- Depreciation does not directly affect the gross profit margin.
Financial Metrics
- The depreciation method used can affect net income, return on assets, and earnings per share, but not gross profit margin.
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Description
Test your knowledge on classifying assets such as current and non-current. Identify examples of non-current assets, understand the difference between current and non-current assets, and learn about the characteristics of each type of asset.
