Key Terms Chapter 17: Depreciation

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Chapter 17 key terms
JOHNA THARP
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Accelerated Cost Recovery System (ACRS) Tax law enacted in 1981 for assets put in service from 1981 through 1986.
Accelerated depreciation Computes more depreciation expense in the early years of the asset’s life than in the later years.
Accumulated depreciation Amount of depreciation that has accumulated on plant and equipment assets.
Asset Cost Amount company paid for the asset.
Book value Cost less accumulated depreciation.
Declining-balance method Accelerated method of depreciation. The depreciation each year is calculated by book value beginning each year times the rate.
Depreciation Process of allocating the cost of an asset (less residual value) over the asset’s estimated life.
Depreciation expense Process involving asset cost, estimated useful life, and residual value (salvage or trade-in value).
Depreciation schedule Table showing amount of depreciation expense, accumulated depreciation, and book value for each period of time for a plant asset.
Estimated useful life How long asset will be in use.
General Depreciation System (GDS) Most common (MACRS) system to calculate depreciation.
Modified Accelerated Cost Recovery System (MACRS) Part of Tax Reform Act of 1986 that revised depreciation schedules of ACRS. Tax Bill of 1989, 2010 updates MACRS.
Residual value Estimated value of a plant asset after depreciation is taken (or end of useful life).
Salvage value Cost less accumulated depreciation.
Straight-line method Method of depreciation that spreads an equal amount of depreciation each year over the life of the assets.
Straight-line rate (rate of depreciation) One divided by number of years of expected life.
Trade-in value Estimated value of a plant asset after depreciation is taken (or end of useful life).
Units-of-production method Depreciation method that estimates amount of depreciation based on usage.

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