Assets
The Depreciation Machine
Pick the method, respect its salvage rule, and prorate for time; DDB ignores salvage in the rate but never crosses it.
How the exam words it
- -The stem asks 'using double-declining balance, what is the depreciation in Year 2?' or the same for SYD or units of production.
- -An asset is bought mid-year (April 1, July 1) and it asks for a partial-year amount.
- -An asset is sold and it asks 'what is the gain or loss?'.
- -It gives carrying value, undiscounted cash flows, and fair value and asks 'what impairment loss, if any, should be recorded?'.
The playbook
- 1Match the salvage rule to the method: straight line and SYD depreciate cost minus salvage; DDB applies 2/life to beginning book value and ignores salvage until book value would fall below it.
- 2Prorate the first year for a mid-year purchase, then roll each year's ending book value forward.
- 3For a disposal, bring accumulated depreciation up to the sale date, then gain or loss = proceeds minus book value.
- 4For impairment, test with undiscounted cash flows but measure the loss down to fair value.
The trap
Letting salvage into the DDB rate or applying the rate to original cost in later years. DDB uses beginning-of-year book value, and salvage only acts as a floor.
How the exam varies it
The same pattern, re-skinned along these axes:
Which method: straight line, DDB, SYD, or units of productionFull year versus partial year, Year 1 versus a later yearDepreciate versus dispose versus impair
Drill this pattern
8 questions of The Depreciation Machine from across the AUD topics. Clear it by getting 5 right with a streak of 3.