Book Value

Learning Outcomes

  • Understand the relationship between accumulated depreciation and depreciation expense

Accumulated depreciation tracks depreciation (cost allocated to the income statement) to date. In the second year, assuming Spivey made no additional PP&E purchases, the depreciation schedule would be as follows:

Fixed Assets
As of 12/31/20X2
Spivey Company
Asset Description Date Purchased Cost Depreciation PY Acc. Dep. CY Acc. Dep.
1 Land 2/1/20X1 262,800
4 Land 10/1/20X1 120,000
Total Land 382,800 – – –
2 Building 7/1/20X1 490,000 11,025 5,513 16,538
5 Building 10/1/20X1 600,000 13,500 4,000 17,500
Total Buildings 1,090,000 24,525 9,513 34,038
3 Machine 7/1/20X1 162,000 35,438 20,250 55,688
6 Delivery Van 10/1/20X1 45,000 16,200 4,500 20,700
7 Machine 10/1/20X1 99,500 23,320 6,219 29,539
8 Office Furniture 10/1/20X1 70,000 13,300 3,500 16,800
9 Computer 10/1/20X1 5,500 1,980 550 2,530
Total Machinery and Equipment 382,000 90,238 35,019 125,257
Total PP&E 1,854,800 114,763 44,532 159,295

The current year depreciation is added to the prior year’s accumulated depreciation to give us the current amount of accumulated depreciation.

After the year-end adjusting journal entry is posted:

JournalPage 101
Date Description Post. Ref. Debit Credit
20X2
Dec 31 Depreciation Expense – Buildings 24,525.00
Dec 31 Depreciation Expense – Machinery 90,238.00
Dec 31       Accumulated Depreciation – Buildings 24,525.00
Dec 31       Accumulated Depreciation – Machinery 90,238.00
Dec 31 To record depreciation expense for 20X2

The ledger accounts would look like this:

Three T accounts side by side. On the left is a machinery chart. On the debit side, there is a beginning balance of 382,000 dollars. There is a debit total of 382,800 dollars. In the middle is a building chart. On the debit side, there is a beginning balance of 1,090,000 dollars. There is a debit total of 1,090,000 dollars. On the right is a land chart. On the debit side, there is a beginning balance of 382,000 dollars. There is a debit total of 382,000 dollars.

Two T accounts side by side. On the left is an Acc. Dep-Machinery chart. On the credit side, there's a beginning balance of 35,019 dollars. On the credit side, there is an adjusting journal entry, on December 31st, of 90,238 dollars. There is an ending balance of 125,257 dollars on the credit side. On the right side is an Acc. Dep-Building chart. On the credit side, there's a beginning balance of 9,513 dollars. On the credit side, there is an adjusting journal entry, on December 31st, of 24,525 dollars. There is an ending balance of 34,035 dollars on the credit side.

Obviously, new purchases would have to be taken into account, as would sales and other dispositions, which will be addressed in the next section.

The book value of machinery and equipment at the end of 20XX would be $256,743, which is the historical cost less accumulated depreciation, and the book value of buildings at the end of 20XX would be $1,055,962.

Notice once again that the GL control accounts give us totals, but not detail. We rely on our subschedules (subsidiary ledgers) to do that. Notice that the subsidiary ledger is tied to (equals) the GL control accounts.

practice question