PP&E Deep Dive: Four Depreciation Methods and Asset Disposal — Financial Accounting

§ 01

Method	Pattern	Best For
Straight-line	Equal amounts each year	Most common, simplest
Double-declining balance	Accelerated early, less later	Assets losing value quickly (tech equipment)
Sum-of-years digits	Accelerated but less extreme	Moderate front-loading
Units of production	Based on actual usage	Mining equipment, vehicles

§ 02

Accelerated methods report lower earnings early and higher earnings later. This is purely a timing difference, not an economic one. But it affects quarter-to-quarter earnings comparisons.

§ 03

When comparing two companies, check their depreciation policies in the footnotes. Different methods on similar assets can make one company look more profitable than the other without any real operational difference.

§ 04

A company's PP&E shows $500M gross, $300M accumulated depreciation, $200M net. They use straight-line over 20 years. What does this tell you about fleet age and replacement risk?

Five questions · AI feedback

Sit with the ideas.

A machine was purchased for $120,000 and has accumulated depreciation of $45,000. It is sold for $70,000. What is the gain or loss on the sale?

Why:

Sit with the ideas.

Other lessons in this course.