Page 18 - FINAL CFA I SLIDES JUNE 2019 DAY 7
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Session Unit 7:
24. Understanding Income Statements
LOS 24.e: Describe general principles of expense recognition, specific expense recognition
applications, and implications of expense recognition choices for financial analysis.
Depreciation Expense Recognition, p53
Example: Double-declining balance depreciation expense: Littlefield Company recently purchased
a machine at a cost of $12,000. The machine is expected to have a residual value of $2,000 at the
end of its useful life in five years. Calculate depreciation expense for all five years:
tanties
Year 4 : ($12,000 - $2000) – ($4800+$2800+$1728) = $592 (instead of 2/5($12,000-$9,408) = $1,036.80)
Check: $9,408 + $592 + Salvage = $12,000 | But $9,408 + $1,036.80 + Salvage = $12,444!
