Depreciation Methods Explained

Advantage And Disadvantages Of Depreciation
4. Discuss about depreciation.
Depreciation is a method of allocating the cost of a tangible asset over the period in which the assets
are used. Most types of tangible assets such as machinery, vehicles, furniture, equipment and
buildings are depreciable. The only exception of tangible asset which is not depreciated is land
because land is not depleted over time. Depreciation also is a monetary value of an asset decreases
over time due to use, wear and tear, unfavourable market conditions or obsolescence of the property.
Besides, businesses depreciate long–term assets for both tax and accounting purposes. For
accounting purpose, depreciation indicates how much of an asset's value has been used up. For tax
purposes, businesses can deduct the cost of the tangible assets they purchase as business expenses.
Depreciation is a non–cash expense. In addition, depreciation is used in accounting to try to match
the expense of an asset to the income that the asset helps the company earn. For example, if a ...
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The one of advantages of straight line method is easy to understand and simple to calculate. The
next advantage of straight line method is it may be suitable where an asset such as plant, machinery
and vehicles utilization is the same in each year. Straight line method is useful where the pattern of
economic benefits is hard to determine with precision. Another advantage of straight line method is
it is most appropriate for assets that are depleted as a result of the passage of time, such as buildings,
leases and patents.
The disadvantage of straight line method is it assumes the benefits contributed by an asset are the
same over the period in which the assets are used. Besides, straight line method may not give an
accurate measure of the loss in value or reduction in useful life. The other disadvantage is it may not
reflect the true pattern of asset's economic benefits.
Method 2: Reducing Balance
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Depreciation at Delta and Singapore Airlines
Depreciation at Delta Air Lines and Singapore Airlines
Acct 531 – Intermediate Finance Acct 1 SECTION 1 – 13WQ
Instructor: John V. Merle, MBA
February 27, 2013
Emma Waage
Roarke Stone
Tim Gould
Introduction
Depreciation expense is the way that the use of an asset is matched with the revenue that is
generated from the asset on the income statement during the time period being reported. Each asset
used in a business has a useful life as disclosed by the company's depreciation policies for each
category of asset. The other piece of calculating depreciation is the assumed salvage or "residual"
value. There are several different methods of depreciating an asset:
1) Straight–line = [pic] 2) Double–declining ... Show more content on Helpwriting.net ...
What does it gain or lose by doing so? How does this relate to the company's overall strategy?
Singapore maintains one of the youngest average fleet ages in the industry at 5.1 years old. They
were depreciating their aircraft over 8 years with a salvage value of 10% up until 1989 and then
increased it to 10 years and 20% salvage value. The average depreciation rate per $100 for
Singapore Airlines was $11.25 prior to this change and $8.00 after, compared with Delta's $6.00.
The company is majority–owned by the Singapore government, but did not receive any subsidy
from the government. Its stock is, however, followed by over 20 investment analysts worldwide. In
1993, their net profit dropped from $922 to $741 million in Singapore dollars as depreciation
expense as a percent of total operating expenses had grown from 14.8% to 15.8% in one year. Staff
bonuses were cut from 3.4 months of pay to .5 months of pay in one year. The other issue that that
was hurting their profitability was that their strategy was not in line with their utilization rate of only
71.3%, down from 78.9% in 1989. They should have been focusing on the amount of depreciation
they were paying expensing as a percent of operating expense much sooner. With profits and

utilization rates declining constantly over the last five years, a focus on the depreciation methods
could have helped them reduce the decline in net profits. With an aggressive capital expansion
program

Tax Depreciation Myths
DEBUNKING TAX DEPRECIATION MYTHS
There is a lot of ambiguity surrounding laws regarding tax depreciation deductions. Many people
fail to claim their full returns due to simple misunderstandings regarding these laws. Depreciation is
the key to augmenting cash–flow on a residential or commercial property. We will take a look at
some of the prevailing myths and debunk them.
Myth #1– You can only depreciate new properties
An investment property does not necessarily have to be brand new in order to attract depreciation
deductions. If you have an older property that was built around 1985 (when the building allowance
came into place) you can still claim depreciation value. It is worth pursuing and enquiring to see
what might be available for you.
Myth #2– ... Show more content on Helpwriting.net ...
Works of plumbing, waterproofing, and electrical wiring can also be estimated and the cost can be
claimed, provided the work was completed after the 18th of July 1985 for residential properties and
July 1982 for commercial properties.
Myth #4– Deductions are only available at the time you make the change
According to ATO rulings, from the completed date of construction, any building eligible to claim
capital works deductions has a maximum effective life of 40 years. Investors, can, therefore, claim
up to 40 years of property depreciation on a new building. Older properties which still has a balance
of some years from the 40 years' period can also be claimed.
Myth #5– The only items that depreciate are Plant and Equipment
In addition to the Plant and Equipment, capital work deductions (known as Division 43 or building
write off) is also claimable. It comprises of the structural element of a building and is based on
historical constructions and includes construction materials.
Be informed and dispel the anomalies surrounding tax depreciation to make it a tool of financial

My First Accounting Position For A National...
Financial Statement Research
I am very excited to shine in my first accounting position for a national telecommunications
company. My supervisor approached me regarding the controller's concerns as the company profits
are down for the past fiscal year compared to the last five years. Therefore, I have been asked to do
the following:
Make a simple adjustment by recalculating the depreciation from five years to ten years. Since the
machine is paid, the depreciation really does not matter.
Make an adjusting journal entry by transferring repairs and maintenance expenses to capital assets.
Depreciation and Journal Expense Adjustments
Depreciation is the process of allocating the cost of an asset to expense over its useful life. It is an
annual allowance for the wear and tear, deterioration or obsolescence of the property. According to
the IRS, "in order for a taxpayer to be allowed a depreciation deduction for a property, the taxpayer
must own the property" (IRS 2015). Therefore, the supervisor's claim that the depreciation thing
does not matter since the equipment is paid is inaccurate. We own the property; therefore, the
recalculation can occur in the following circumstances:
Wear and tear or obsolescence can indicate an inadequate or excessive equipment value, therefore
the company, can change the amount of the depreciation expense.
Additions and improvements occur which increase the operating efficiency or expected useful life of
the asset. Since these

Woodlawn Engineering Case Study
To: Agnes Currie, CFO
From: Group 28
Date: Monday November 21, 2011
Subject: Long–lived Assets
In response to you requested investigation regarding the property, equipment and intangible asset
accounts, we have completed adjustments to the necessary accounts. During the year new office
equipment was purchased at a cost of $2,697.50. We will calculate the difference between the
accumulated Depreciation of office equipment balance and the office equipment account. We will
then include the new office equipment to the balance, and then multiply the new balance by 20
percent using the declining–balance basis:
NOTE (a) Office equipment
DR. Depreciation Expense $4,740
CR. Accumulated Office Equipment Depreciation $4,740 ... Show more content on Helpwriting.net
...
Finally, our net book value in 2010 will be $122,050.10, which is the difference between the new
2010 leasehold improvement and the accumulated depreciation of leasehold improvements:
NOTE (d)
Leasehold Improvements
DR. Depreciation Expense $12,205
CR. Accumulated Depreciation – Leasehold improvements $12,205
Calculations: To reconcile the accounts as at August 31/09:
(2008) $86,688.78/10(Years useful life) = $8,668.88(Accumulated Depreciation)
(2009) $86,688.78 – $8,688.88 = $78019.90 + $21,455.15(2009 Expense) = $99,475.05
$99,475.05/9(Remaining years of useful life) = $11,052.78(Accumulated Depreciation)
(2010) $99,475.05 – $11,052.78 = $88,422.27 + $45,832.84 (2010 Expense) = $134,255.11
$134,255.11/11(New remaining years of useful life)
= $12,205.01(Accumulated Depreciation) = $134,255.11 – $12,205.01 = $122,050.10 (Net Book
Value)

There is no need to make a journal entry for the 2,500 spent on disposing of capital assets because it
was correctly recorded as a Repairs and Maintenance expense.
Financial Statement Values:
Below are financial statement captions and related amounts that will appear on the balance sheet
and income statement for property and equipment and intangible assets:
NOTE Unadjusted Adjusted August

Depreciation of Property, Plant and Equipment
Mattel
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation is computed using the straight–line method over estimated useful lives of 10 to 40
years for buildings, 3 to 10 years for machinery and equipment, and 10 to 20 years, not to exceed
the lease term, for leasehold improvements. Tools, dies, and molds are amortized using the straight–
line method over 3 years. Estimated useful lives are periodically reviewed and, where appropriate,
changes are made prospectively. The carrying value of property, plant, and equipment is reviewed
when events or changes in circumstances indicate that the carrying value of an asset may not be
recoverable. Any ... Show more content on Helpwriting.net ...
In the 2010 fourth quarter, we decided to pursue the disposition of a land parcel. In accordance with
the guidance for the impairment of long–lived assets, we evaluated the property for recovery and
subsequently in 2010 we recorded an impairment charge of $14 million to adjust the carrying value
of the property to our estimate of fair value. We estimated that fair value using an income approach
reflecting internally developed Level 3 cash flows that included, among other things, our
expectations about the eventual disposition of the property based on discussions with potential
third–party purchasers. The impairment charge impacted the general, administrative, and other
expense line in our Income Statement, and we allocated that charge to our North American Limited–
Service segment.
Starbucks
Property, Plant and Equipment Property, plant and equipment are carried at cost less accumulated
depreciation. Depreciation of property, plant and equipment, which includes assets under capital
leases, is provided on the straight–line method over estimated useful lives, generally ranging from
two to seven years for equipment and 30 to 40 years for buildings. Leasehold improvements are
amortized over the shorter of their estimated useful lives or the related lease life, generally 10 years.
For leases with renewal periods at the Company's option, Starbucks

Depreciation and New Equipment
Point of View
This case study is discussed from Paperco, Inc. point of view of whether they should avail the tax
benefits and cost savings in replacing the mechanical drying equipment.
Recommendation
Based on the analysis below in this memo, Paperco should purchase new mechanical drying
equipment now in advance in anticipation of the passage of new tax legislation. Purchasing the
equipment now maintains a positive Net Present Value for the capital project if the legislation is not
enacted, or if the new legislation is enacted and the capital project is contracted early enough so that
it is grandfathered in. With tax legislation grandfathered, the project gets the benefit of the new
lower corporate tax rate and the old ACRS ... Show more content on Helpwriting.net ...
Paperco would retain all tax credits due to the fact the machine has been in service for 84 months,
and use a 5–year ACRS depreciation model for the new equipment. This option has a positive NPV
of $2,619,745.
Option II in which the new tax proposal is enacted. The new equipment is installed in December
1986. Paperco signs a binding contract soon enough to be "grandfathered", this allows Paperco to
receive the 8% tax credit and use ACRS depreciation. At the same time, their tax rate would fall to
34%. Paperco would benefit from this more favorable "grandfathered" tax approach. Option II has a
positive NPV of $3,414,104.
Option III in which the new tax proposal is enacted and Paperco installs the new equipment in
December 1986, but they do not sign a binding contract in time to be "grandfathered" and receive
the 8% investment tax credit and use ACRS depreciation. The company will use MACRS and a
depreciation period of 7 years. The NPV of the project with this timing and structure is $3,228,044.
Without the "grandfathered" tax allowance, the new tax legislation makes the project unattractive
based on lower Net Present Value.
Calculations
Re–affirmation
There are three options available to Paperco, Inc. with respect to this capital investment:
Option I: New legislation is passed and Paperco

The Cost Of Revenue And Capital Expenditure
Revenue expenditure is defined as "a cost that is charged to expense as soon as the cost is incurred.
By doing so, a business is using the matching principle to link the expense incurred to revenues
generated in the same accounting period. This yields the most accurate income statement results,"
(Revenue Expenditure, n.d). On the other hand, capital expenditures are defined as "the funds or
assumption of a liability in order to obtain physical assets that are to be used for productive
purposes for at least one year. This type of expenditure is made in order to expand the productive or
competitive posture of a business. A capital expenditure is recorded as an asset, rather than charging
it immediately to expense. The fixed asset is then charged to expense over the useful life of the
asset, using depreciation" (What is a capital expenditure, n.d). The distinction between revenue and
capital expenditures is important because revenue expenditure is charged as soon as the cost is
incurred, while capital expenditure is depreciated over the life of the asset. "If the asset's life is
increased, the efficiency provided is increased, or if output is increased, its service potential has
increased, and the cost of expenditure should be capitalized and written off over the expected period
of benefit. All other expenditures made subsequent to acquisition should be expensed as incurred,"
(Schroeder, Clark & Cathey, 2014, p. 318).
"Depreciation accounting is a system of accounting

Effects Of Depreciation On The Real Estate Appraisal
Depreciation is defined as "the loss in value, from all causes, of property having a limited economic
life." (Thimgan, p.257, 2010) The cause of depreciation could be wear and tear, decay, inadequacy,
excessiveness, obsolescence, and negative externalities of factors external to the subject property.
There are various forms depreciation recognized in the real estate appraisal. The following are
commonly applied depreciation forms:
Physical depreciation is the loss in market value due to wear and tear and the actions of the forces of
nature. It has two classes: curable physical deterioration – occurs when repairs add a value equal or
in excess of the cost of the repair. This can be measured using the cost to cure. The following can be
mentioned as a short lived curable physical deterioration: broken window, leaky plumbing, cracked
paint or plaster, worn out floor cover, leaking roof. Incurable physical deterioration – is a situation
where the cost of repair exceeds the added value to the property as of the date of the appraisal. In
this case, it is not economically rational to repair or replace. The depreciated amount is determined
using age–life ratio out of the total cost new of the item replaced. The following constitute examples
of incurable physical deterioration roof cover, hot water heater, and carpeting.
Functional obsolescence is a loss in market value due to the inability of the improvement to operate
or function efficiently for its supposed use as the date of

Depreciation and Income Statement
Ciclon de alicante
How to win outside the soccesfield
Content
The absolute goal of Ciclón de Alicante is to become a major soccer club in Spain.
But how?
The stadium
Q: What is the impact of the sale of the stadium transaction on Ciclón's 2003 Income Statement and
Statement of Cash Flows (under the Indirect Method), and on its Balance Sheet for the year ended
on December 31th, 2003? Items to be addressed cash payment of $ 100 million cost of building the
new stadium was $ 20 million market value of the land was $ 12 million the book value of the old
stadium was $ 1 million useful live of the stadium was 40 years demolition cost at end useful live
estimated $ 5 million (I take it as estimated $ 5 mio in 2043).
Sale of old stadium ... Show more content on Helpwriting.net ...
Items to be addressed: market price garage $ 6.5 mio (January 1, 2003) lease 10 years for annual
payment of $ 1 mio (end year, start 2003) useful life 20 years, when major renovations are needed
Ciclón marginal borrowing rate was 10% lease contract signed January 1, 2003
–Capital or operational Lease?
According to US GAAP the criteria for capital lease is:
a. the term of the lease exceeds 75% of the asset's useful life; or b. the present value of the lease
exceeds 90% of the asset's fair value a. is not the case: useful life is 20 years, term of lease is 10
years b. PV of the 10 payments of $ 1 mio at the end of the year with 10% rate is: $ 6.144 mio (see
table PV). That is 95% of the value of the asset of $ 6.5 mio
So this is a capital lease according to US GAAP
Lease amortization schedule
(2003 – 2012 in $)
Lease amortization schedule years begin payment 2003 6.144,000 1.000,000

Depreciation And Amortization For Intangible Assets
In accounting the terms depreciation, depletion and amortization often involve the movement of
costs from the balance sheet to the income statement in a systematic and logical manner.
Amortization Expense is an accounting term used as Account Charged for the Amortization or
allocation of Expenses for Prepayments & Intangible Assets. It solely deals with intangible assets
and does not concer tangible assets like land property etc. Intangible Assets include trade names,
trademarks, franchise licenses, patent, copyrights, government licenses, goodwill and other assets
that lack physical substance but provide long–term benefits to the company. Amortization for
Intangible Assets is allocated over the useful life or legal life, whichever is ... Show more content on
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Intangible assets include patents, copyrights, software, contracts, trademarks, trade names, franchise
licenses, government licenses, goodwill, and other items that lack physical substance but provide
longterm benefits to the company.
A trademark is a word, phrase, symbol, and/or design that identifies and distinguishes the source of
the goods of one party from those of others. A service mark is a word, phrase, symbol, and/or design
that identifies and distinguishes the source of a service rather than goods. The term "trademark" is
often used to refer to both trademarks and service marks.
A patent protects an invention and innovations or improvements thereon by providing the inventor
with a set of exclusive rights which prevent others from making, using, offering for sale, or selling
the invention without the consent of the inventor. An idea in itself can not be patented. The idea
must be materialized into an invention, innovative product, device or process that offers new
solutions to a problem in order for the registrant to be able to seek the patent. Patents protect
products in the fields of machinery, manufacturing, composition of matter (a combination of
chemicals), and processes (methods of manufacturing).
Copyrights protect works of authorship and cover: a) works of art (2 or 3 dimensional), b) photos,

Long Lived Assets And Depreciation
Long–Lived Assets & Depreciation
Long–Lived Assets Long–lived assets are defined as those assets that can benefit any business
beyond a years' time. When a company purchases an asset, it will either expense or capitalize the
purchase (Harper, 2015). In defining this term, there are numerous categories of long–lived assets
including plant assets. These are resources which have physical substance and are used in the
everyday operations of an organization. Furthermore these resources are not meant for consumers to
purchase. Another example of long–lived assets is land. Land is different than other long–lived
assets as it does not depreciate over time. The entire cost of land consists of the amount the land was
purchased; the cash purchase ... Show more content on Helpwriting.net ...
The improvement, therefore can depreciate. Other long–lived assets include the buildings that are
used in operation such as offices buildings or warehouses. Of course, costs include the cost of the
building itself, legal fees and taxes. Equipment is also included and is comprised of furniture,
machinery, office equipment, and vehicles used for delivery. The cost includes purchase price, tax,
and insurance. Once an organization has purchased long–lived assets for their business, typically,
the cost is depreciated or amortized over the span of the expected useful life of the asset (What is a
long lived asset? , 2015). This is completed as a method to correspond the continuing use of the
asset with the results of financial benefit. There are various methods of depreciation that will be
discussed, with the first being the straight–line method of depreciation, followed by the accelerated
and the activity methods.
Depreciation Methods
The Straight–Line Method of Amortization (Depreciation) The straight–line method of amortization
or depreciation is widely used by many organizations in order to depreciate fixed assets and is the
most common method that is used to amortize intangible assets. This method is selected because
organization financial leaders and accountants feel the asset delivers benefits throughout each year
of the projected useful life. In addition, this method has the advantage of being easy to apply and it
results in greater net

Depreciation
Depreciation of Property, Plant and Equipment
Group 8
1. Complete the textbook problem assigned to your group per the requirements of the specific
problem or case.
P–2 The cost of equipment purchased by Charleston, Inc., on June 1, 2014, is $89,000. It is
estimated that the machine will have a $5,000 salvage value at the end of its service life. Its service
life is estimated at 7 years, its total working hours are estimated at 42,000, and its total production is
estimated at 525,000 units. During 2014, the machine was operated 6,000 hours and produced
55,000 units. During 2015, the machine was operated 5,500 hours and produced 48,000 units.
Instructions: Compute depreciation expense on the machine for the year ending December 31, ...
Year Book value of Asset Rate on Declining Balance Partial depreciation expense 2014 $89,000
28.57% 7/12 $14,833 2015 $74,167 28.57% 1 $21,190 2. Use the FASB ASC database to find the
appropriate supporting GAAP references for the problem (See the PowerPoint Slides on the
appropriate way to show official GAAP references–Research Folder)
Answer:
ASC 360–10–35–4 & ASC 360–10–35–7
360 Property, Plant, and Equipment 10 Overall 35 Subsequent Measurement
Depreciation
35–4 The cost of a productive facility is one of the costs of the services it renders during its useful
economic life. Generally accepted accounting principles (GAAP) require that this cost be spread
over the expected useful life of the facility in such a way as to allocate it as equitably as possible to
the periods during which services are obtained from the use of the facility. This procedure is known
as depreciation accounting, a system of accounting which aims to distribute the cost or other basic
value of tangible capital assets, less salvage (if any), over the estimated useful life of the unit (which
may be a group of assets) in a systematic and rational manner. It is a process of allocation, not

Depreciation at Delta & Singapore Airlines
Financial Accounting Depreciation at Delta Airlines & Singapore Airlines (Solution to Case #2)
24th November, 2009 1. Calculate the annual depreciation expense that Delta and Singapore would
record for each $100 gross value of aircraft. a. Delta: i. Prior to July 1, 1986 the Delta airline assets
were depreciated using Straight Line Method at 10% for 10 years for a salvage value of 10%.
Depreciation Expense = (Cost of Asset – Salvage Value) / number of year Depreciation Expense =
(100.00 – 10.00) / 10 = 9 dollars for every 100 dollars of airline equipment ii. From July 1, 1986 to
March 31, 1993 the depreciation was Straight line at 10% for 15 years for a salvage value of 10%. ...
Every company has their own way to depreciate fixed assets based on their requirements and
situations. The main reason for such a difference in strategies is showing the amount of profit in a
particular period. In case of Delta they have increased the life of an asset showing low depreciation
which leads to low operating expense resulting in higher profits. However for Singapore airline the
operating profit is good and there is not much need to show lower depreciation, moreover it adds on
to their value by showing a higher salvage value for the equipments they carry. The difference is
policies if proper as the useful life of the asset and the salvage value largely depend the experience
that the organization has in the field and usage of the equipment. In this case we can clearly see that
Singapore airlines have a much smaller operation level than delta. 3. Assuming the average value of
flight equipment that Delta had in 1993, how much of a difference do the depreciation assumptions
it adopted on April 1, 1993 make? How much more or less will its annual depreciation expense be
compared to what it would be were it using Singapore's depreciation assumptions? |Delta Airlines
|1993 | |Value of Owned Aircraft

Chapter 6 and 7
Problems/Answers: FIN 534
I have provided the answers to Chapters 6 and 7, you are to provide the solutions and explanations,
namely, how were you able to determine the same answers. I want to see, how you go about solving
these problems. I would encourage you to use the MyFinanceLab and go over the previous
Chapters. Keep in mind that these responses are due, November 1, 2010. I will use your submission
to grade you and not the group work that you did in class, last Thursday. I trust that you will find
this helpful. Also, provide all submissions to the dropbox. I am in the process of setting it up. So
give me until Monday before you start with your submission. MY QUESTIONS WILL BE IN
BOLD CAPS.
Chapter 6:
Problem 3: 6–3. You are ... Show more content on Helpwriting.net ...
g. Interest expense on the debt borrowed to pay the construction costs.
a. No, WHY, EXPLAIN?
b. Yes, WHY, EXPLAIN?
c. Yes, WHY, EXPLAIN?
d. No, WHY, EXPLAIN?
e. This is a capital expenditure associated with opening the new store. WHY, EXPLAIN?
f. Yes, this is an opportunity cost of opening the new store. WHY, EXPLAIN?
g. WHY, EXPLAIN?
Problem 9: 7–9. Elmdale Enterprises is deciding whether to expand its production facilities.
Although long–term cash flows are difficult to estimate, management has projected the following
cash flows for the first two years (in millions of dollars): a. What are the incremental earnings for
this project for years 1 and 2?
b. What are the free cash flows for this project for the first two years?
a.
Year 1 2
Incremental Earnings Forecast ($000s)
1 Sales
2 Costs of good sold and operating expenses other than depreciation
3 Depreciation
4 EBIT
5 Income tax at 35%
6 Unlevered Net Income 39.0 41.6

FILL IN THE NUMERS USED TO DETERMINE UNLEVERED NET INCOME
b.
Free Cash Flow ($000s) 1 2
7 Plus: Depreciation
8 Less: Capital Expenditures
9 Less: Increases in NWC
10 Free Cash Flow 29.0 29.6 FILL IN THE NUMERS USED TO DETERMINE FREE CASH
FLOW Problem 15: 7–15. Markov Manufacturing recently spent $15 million to purchase some
equipment used in the manufacture of disk drives. The firm expects that this equipment will have a

Allocation Of The Lump Sum Purchase Price
13–28) I would still go ahead and question the propriety of the directors' allocation of the lump–sum
purchase price due to the fact of the concern of the purchasing price among the several kinds of
assets acquired; in which allocation was approved by the board of directors of Case Corporation,
placed very high values on the tangible assets acquired and allowed nothing for goodwill. Beings I
am no expert, but due to the concern with the purchase price among the assets acquired, I would end
up questioning it just to get some insight to what happened in Case Corporation acquiring the Mall
Company. Maybe the board of directors knew what they were doing, even if they paid a higher then
normal buy–out price to acquire the Mall Company and the assets it had in order to not have
competition in one area. I would want to know what some of the specific to the contract written up
in the acquisition, then if everything was legally binding in–so–much something that was added can
be upheld by law and if not, start diving more into the legalities of the acquisition. In this case, it is
getting as much information to make a more informed decision before considering of offering an
unqualified opinion. 13–31) (A) Audit of fair value is often difficult beings the values are usually
determined using subjective assumptions. (B) I would evaluate and test the model of management
valuation, in which I would evaluate (1) valuation model used, (2) whether the substantial
assumptions are consistent

Use of Accelerated Depreciation Methods Allows Shifting of...
Use of Accelerated Depreciation Methods Allows Shifting of Income
The past two decades of tax law have created more opportunities than ever for business owners to
defer tax amounts. Today, it is common practice for businesses to rely on accelerated depreciation to
help lessen the burden of taxes imposed on corporate profits, and also shift their income to ethically
maximize financial growth. For the purpose of accounting, accelerated depreciation intends to
reflect how much of the corporation's asset is being used up each year, assuming that the highest
rate of productivity is found in the first few years. This type of tax allowance qualifies as an initial
allowance in the first year, or can be spread out over several years ... Show more content on
Helpwriting.net ...
Corporate assets cover a wide variety of investments, including buildings, machines, vehicles,
computers, office furniture and any other kinds of additions and improvements (as opposed to
repairs). With Straight–Line Depreciation, a business owner would select a term (i.e. five years),
and divide up the purchase cost evenly for each year of the term. In contrast, Declining–Balance
Depreciation using a declining book value to calculate depreciation, which would provide a major
shift of generated revenue, affecting income in the short term. Also, by having higher depreciation
in the initial years of the asset's productive live will produce lower taxable income for the company
(Fishman 120–22). Since they increase cash sources for a company, accelerated depreciation
methods are almost the same as obtaining a lower tax rate altogether. Under the current tax law, this
incentive is exceptionally beneficial for reducing tax liabilities, which in turn creates the funds to
purchase new assets, as well as encourage businesses to invest more in new assets. Depending on a
particular company's size and unique needs, the tax benefit would allow a company to take the
money saved through a multi–year payoff and put into a fund to generate interest. Or at a company
needing several large assets to efficiently turn a profit, they could use the additional cash resources
to purchase a new piece of equipment (similar to a regular bank loan). Accelerated depreciation is a
widely

Harnischfeger Case
1. Describe clearly all of the accounting changes Harnischfeger made in 1984.
–In 1984, there was a switch from accelerated to straight line depreciation retroactively. Because of
this, the depreciation expense decreased.
–The estimated depreciation lives on certain U.S. plants, machinery and equipment changed. The
economic life of these assets was increased, so the depreciation expense was lowered.
–There was an improvement in the minimum pension benefit. This change produced a lower
pension expense.
–The was a liquidation of LIFO inventory quantities carried at lower cost compared with the current
cost of their acquisitions. Because of this, COGS decreased.
–The accounts receivable were net of allowances for doubtful accounts ... Show more content on
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How much did the pre–tax income increase as a result of the changed ratio in 1984?
The ratio of the allowance to gross receivables in 1983 is: $6.4 million/$70.1 million*100=9.1%.
The ratio of the allowance to gross receivables in 1984 is: $5.9 million/$93.5 million*100=6.3%
The allowance would have been $8.5 million if they would have had consistency on the ratio from
1983 in 1984. As a result, the pre–tax income increase is $2.6 million due to the changed ratio in
1984.
In Millions of US$ 1984 1983
AR Net 87.6 63.7
Allowance for Doubtful accounts 5.9 6.4
AR Gross 93.5 70.1
Allowance for Doubtful accounts ratio 6.3% 9.1%
6. Note 9 indicates that Harnischfeger decreased its R&D expense considerably in 1984
relative to the previous two years. Do you think this change was motivated by business
considerations or accounting considerations? How did this change affect the company's reported
profits in 1984?

In 1984, Harnischfeger's reported profits during each of the four quarters, ending the year with a
pre–tax operating profit of $5.7 million and a net income after tax and extraordinary credits of $15
million. So I think that this action was motivated by business considerations, since the accounting
practices were not the best. These actions made profits look positive.
Research and development expense incurred in

Equipment Depreciation
Purchasing equipment is one of the biggest expenses that small businesses and start–ups face. The
IRS allows you deduct most or all of these expenses. This in turn helps you recoup the cost
associated with running your business. Moreover, by taking this deduction when you prepare your
tax return, it lowers your overall tax bill. In some cases, especially for small businesses, the
deductions could result in a refund.
There are different ways to expense business equipment when filing taxes, which can often lead to
confusion. If you're unsure how the deductions will affect your business, hiring a tax accountant is a
good idea. Mistakes or miscalculations when filing your tax return could trigger an IRS audit. A
professional can lessen the stress and time constraints during the tax preparation season.
Types of Equipment Your Can Expense
Business equipment is ... Show more content on Helpwriting.net ...
For instance, furniture, office equipment, vehicles, computers, business software, and machinery
would all fall under equipment depreciation. These tangible items for your business are considered
capital assets since they are used to make a profit.
Understanding Section 179 Deduction
Under Section 179, the IRS allows you to deduct the full price of the equipment you purchased or
leased during the year. By taking this deduction, you are essentially deducting the full cost of the
equipment from your company's gross income.
Your company must have a taxable income before you can use the 179 deduction. Additionally,
there is a cap on the deduction set at $500,000 that you can claim. There is also a maximum of
$2,010,000 for business equipment expenses during the year that Section 179 is claimed. Most small
business will not spend this amount on equipment during the early years of being in business, which
is why this deduction is so valuable.
Section 179

The Pros And Cons Of Depreciation
Disposal of an asset occurs when the asset is sold, traded, or discarded. Furthermore, the company
must update depreciation to the date of sale and must calculate a gain or loss on the disposal. When
the selling price of the asset exceeds its book value it means gain occurs. However, when the selling
price of the assets is less than its book value it shows loss (Porter, G.A. & Norton C.L.).
An asset may be disposed of in several different ways. One prevalent method is to sell the asset for
cash. Sale of an asset involves two consequential considerations. First, depreciation must be
recorded up to the date of sale. If the sale does not occur at the fiscal year–end, customarily
December 31, depreciation must be recorded for a partial period from the ... Show more content on
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Goods are produced with the assist of machinery which incurs depreciation in the technique of
production. This depreciation need to be regarded as a part of the value of manufacturing of goods.
Otherwise, the machinery Y would be proven less than the genuine cost. Sales price is constant
typically on the basis of cost of production. So, if the fee of production is proven less by means of
ignoring depreciation, the sale price will also be constant at low stage resulting in a loss to the
business ("accounting details" s.f).
Furthermore, the businessman can replace his/her assets through depreciation. After sometime, an
asset will be totally exhausted on account of use. A new asset must then be purchased requiring a
giant sum of money. If the total amount of earnings is withdrawal from enterprise each year barring
considering the loss on account of depreciation, fundamental sum may now not be reachable for
shopping for the new asset. In such a case the required cash is to be collected by introducing
sparkling capital or through obtaining loan or with the aid of promoting some different assets. This
is contrary to sound commerce

Solution Chapter 10- Accounting
Chapter 10
Plant Assets, Natural Resources, and Intangibles
QUESTIONS
1. A plant asset is tangible; it is used in the production or sale of other assets or services; and it has a
useful life longer than one accounting period.
2. The cost of a plant asset includes all normal and reasonable expenditures necessary to get the
asset in place and ready for its intended use.
3. Land is an asset with an unlimited life and, therefore, is not subject to depreciation. Land
improvements have limited lives and are subject to depreciation.
4. Often the lump–sum or basket purchase includes assets with different lives that must be
depreciated separately. Sometimes the purchase may include land, which is never depreciated.
5. ... Show more content on Helpwriting.net ...
Financial statement users can use total asset turnover to evaluate the efficiency of a company in
using its assets to generate sales.
17. Best Buy lists Land and buildings; Leasehold improvements; Fixtures and equipment; Property
under capital lease. The book value of these assets is $2,938,000,000.
18. Circuit City calls its plant assets "Property and equipment, net of accumulated depreciation."
The book value of the property and equipment is $921,027,000.
19. The word "net" means that RadioShack is presenting its property, plant, and equipment after
deducting accumulated depreciation to date.
20. Apple's long–term assets discussed in this chapter are: Property, plant, and equipment, net;
Goodwill; Acquired intangible assets, net.
QUICK STUDIES

Quick Study 10–1 (10 minutes)
Recorded cost = $350,000 + $10,000 + $4,000 + $21,000 = $385,000
Note: The $4,200 repair charge is an expense because it is not a normal and reasonable expenditure
necessary to get the asset in place and ready for its intended use.
Quick Study 10–2 (10 minutes)
1. The main difference between plant assets and current assets is that current assets are consumed or
converted into cash within a short period of time, while plant assets have a useful life of more than
one accounting period.
2. The main difference between plant assets and inventory is that inventory is held for resale and
plant assets are not.
3. The main

Depreciation: Airplanes & Garbage Trucks Essay
Depreciation: Airplanes and Garbage Trucks Part I: Airplanes Assume that on January 1, 2005, each
of the three airlines purchases a new Boeing 757 for $75 million. Each airline estimates that the
residual value will be 5% of cost. Each airline uses the average depreciation period that is consistent
with its policies as stated in the Appendix, found on page 3. On January 1, 2009, each firm sells the
plane. First, assume that Northwest sells its plane for $55 million, Delta sells its plane for $60
million, and United sells its plane for $65 million (Sale Price I). Second, assume each firm sells its
plane for $60 million (Sale Price II). Complete the following table. Report the dollar amounts in
millions, rounded to thousands ... Show more content on Helpwriting.net ...
Another reason for choosing different useful lives of the same equipment could be based upon how
much and in what capacity each company uses its respective airplanes. For instance, Northwest has
a much shorter useful life than United for its plane because Northwest's planes may spend more
hours in the air than United's planes, giving it a shorter useful life. Which set of sale prices (I or II)
do you think is more realistic? Why? Choosing the most realistic option of the sales prices is
conditional. For instance, if the useful life was determined based upon the actual usage of the
airplanes and the usage differed, then it is safe to assume that the sales prices would differ. If that
were the case, then sales price I would be the most realistic option. If the usage were the same or
nearly the same for each plane, the planes should be equal in value and sales price II would be the
most reasonable option. Based upon the limited information given in this example, it would be
prudent to assume that all the planes are equal in value; therefore, sales price II should be used. Part
II: Garbage Trucks Summarize the charges against Waste Management in your own words. The
executives of Waste Management, in order to save their jobs and keep/increase their personal
bonuses, manipulated financial records in order to give the appearance to investors that certain
earnings targets were

Essay On Depreciation
Depreciation of Fixed Assets
Depreciation
A business may acquire fixed assets such as land, buildings, machinery, office equipment, delivery
equipment and natural resources (e.g. a piece if mining land)to help in the process of its operations
to earn revenue in order to make a profit. Such assets, by their very nature, provide benefits to the
business for more than one financial year or period. In fact, when a business buys a fixed asset at a
certain cost (say $10,000), it is actually buying a bundle of service benefits that will be provided by
that fixed asset over a period of time in the future (say 10 years).
Take, for example, when a wholesaler buys a delivery van, it is in effect buying transporting
services for his goods that ... Show more content on Helpwriting.net ...
Calculation of Depreciation
It is very difficult to come to the 'true ' value of the service benefits provided by a fixed asset that is
used up or consumed during an accounting period. Depreciation is at best an estimate, depending on
which method we use. It is only after the fixed asset is sold off that we can know for certain how
much depreciation should actually have been.
Depreciation can be calculated by one of the following methods: 1. The Straight Line or Fixed
Instalment method; 2. The Reducing Balance or Diminishing Balance method; and 3. The
Revaluation method.
Straight Line or Fixed Instalment Method
By this method, the fixed asset is assumed to depreciate at equal amount for every year of its
expected lifetime. The cost of the asset is spread evenly over its lifetime.
Reducing Balance or Diminishing Balance Method
By this method, the asset is supposed to depreciate at a fixed percentage of its depreciated value (or
book value) at the beginning of each year. The amount set aside for depreciation will diminish with
every successive period since the value of the asset at the beginning of every successive period
tends to diminish.
The main advantage of this method is that in the Profit and Loss Account, the amount of overall
expenses charged for the use of a fixed asset would be more or less constant throughout the asset 's
lifetime. This is because depreciation is only one of the expenses involved. Other

The Importance Of The Assets And Depreciation Property,...
Introduction,
In today's world, definitions of assets are constantly expanding. According to the text book (Deegan,
2012, p. 67) "Defined in the AASB conceptual framework as a resources controlled by the entity as
a result of past event and from which future economic benefits are expected to flow the entity". In
simply words, asset is a valuable item that can be control and have future economic benefits. For
examples building, land, and equipments.
This paper is going to talk about the definition of the assets, recognition of the assets, classification,
and how to determine the acquisition cost of assets. The second part of this essay will compare the
methods of the assets and depreciation property, plant and equipment for the two annual reports
between National Australian Bank and Coca Cola Amatil Limited pursuant as per Australian
Accounting Standard Board (AASB) 116. To define the meaning of an asset, it is required to meet
the key items of criteria such as: the items need to have future economic benefits, control, past
events, probable and reliable measurement. All of these are showing at financial statement. If one of
the key criteria of the above is not there, the item cannot be classified as an asset and should not be
shown in balance sheet.
Assets have two different classifications, current assets and non current assets. The current asset is
an asset that is available and can be converted into cash no longer than 12 months after financial
period, whereas the

Advantages Of Depreciation
Depreciation in accounting concept is the gradual conversion of the cost of a tangible capital asset
or fixed asset into an operational expense (called as depreciation expenses) over the asset's
estimated useful life. There have 3 objectives of the depreciation: 1) Spread a large expenditure
(purchase price of the asset) proportionately over a fixed period to match the revenue received from
it. 2) Reduce the taxable income by charging the amount of depreciation against the company's total
income. In effect, charging of depreciation means recovery of invested capital, by gradual sale of
the asset over the years during which output or service are received from it. 3) Reflect the reduction
in the book value of asset due to obsolescence or wear and tear. Depreciation normally ... Show
more content on Helpwriting.net ...
More difficult to calculate
Units of activity Most accurate reflects the pattern of consumption of economic benefits. Suitable in
case of fixed assets that depreciate in proportion to units of activity rather than just the passage of
time. Difficult to determined and measure a reasonable basis of

Depreciation Outline
Outline I. The possible health benefits of music are criticized, yet they yield depreciation in negative
emotions, exemplify an increase in physical stimulus, and ultimately instills exponential
development. II. Yields depreciation in negative emotions (Gale OneFile). A. Anxiety, depression,
and loneliness (Tims & Bruhn 1999). 1. Further stimulates pain reduction, and coping with stress
(Tims & Bruhn 1999). 2. Creates a spike in Human Growth Hormone lessening effects of aging
(Tims & Bruhn 1999). B. Social keyboard lessons for the elderly (Tims & Bruhn 1999). 1. Creates
social awareness (Tims & Bruhn 1999). 2. Enhances cognitive performance, learning, and decision
making (Tims & Bruhn 1999). III. Exemplifies an increase

Depreciation Assignment
Certification
I certify to the best of my knowledge and belief, that: The statements of fact contained in this report
are true and correct.
The reported analyses, opinions, and conclusions are limited only by the reported assumptions and
limited conditions and are my personal, unbiased, professional analyses, opinions, and conclusions.
I have no present or prospective personal interest or bias in the property that is the subject of this
report. I have no personal interest or bias with respect to the parties involved. However, I am
currently the City of St. Johns Assessor.
My involvement in this assignment as part of my employment as the City of St. Johns Assessor or in
future employment assignments as the City of St. Johns Assessor is not contingent upon developing
or reporting predetermined results.
My compensation is not contingent upon the reporting of a predetermined true cash value or
direction in true cash value ... Show more content on Helpwriting.net ...
Depreciation is sometimes subdivided into three types: physical deterioration (wear and tear),
functional obsolescence (suboptimal design in light of current technologies or tastes), and economic
obsolescence (poor location or radically diminished demand for the product).
Estate in Fee Simple
An inheritable, possessory interest in land that may endure until the extinction of all lineal and
collateral heirs of the first owner and that may be freely conveyed by its owner; the largest possible
estate in land.
External (Economic) Obsolescence
The loss of value (relative to the cost of replacing a property with property of equal utility) resulting
from causes outside the property that suffers the loss. Usually location in nature in the depreciation
of real estate, it is more commonly market wide in personal property, and is generally considered to
be economically infeasible to

Depreciation and Vital Spark
New Economy Transport (A) p. 182The New Economy Transport Company (NETCO) was formed
in 1955 to carry cargo and passengers between ports in the Pacific Northwest and Alaska. By 2008
its fleet had grown to four vessels, including a small dry–cargo vessel, the Vital Spark. The Vital
Spark is 25 years old and badly in need of an overhaul. Peter Handy, the finance director, has just
been presented with a proposal that would require the following expenditures: Mr. Handy believes
that all these outlays could be depreciated for tax purposes in the seven–year MACRS class.
NETCO 's chief engineer, McPhail, estimates the postoverhaul operating costs as follows: These
costs generally increase with inflation, which is ... Show more content on Helpwriting.net ...
This is a nominal, not a real, rate. NETCO 's tax rate is 35%. QUESTION 1. Calculate the NPV of
the proposed overhaul of the Vital Spark, with and without the new engine and control system. To
do the calculation, you will have to prepare a spreadsheet table showing all costs after taxes over the
vessel 's remaining economic life. Take special care with your assumptions about depreciation tax
shields and inflation. New Economy Transport (B) There is no question that the Vital Spark needs
an overhaul soon. However, Mr. Handy feels it unwise to proceed without also considering the
purchase of a new vessel. Cohn and Doyle, Inc., a Wisconsin shipyard, has approached NETCO
with a design incorporating a Kort nozzle, extensively automated navigation and power control
systems, and much more comfortable accommodations for the crew. Estimated annual operating
costs of the new vessel are: The crew would require additional training to handle the new vessel 's
more complex and sophisticated equipment. Training would probably cost $50,000 next year. The
estimated operating costs for the new vessel assume that it would be operated in the same way as the
Vital Spark. However, the new vessel should be able to handle a larger load on some routes, which
could generate additional revenues, net of additional out–of–pocket costs, of as much as $100,000
per year. Moreover, a new vessel would have a useful service life of 20 years or more. Cohn and

Financial Statements Measure The Liquidity And The...
Introduction The financial statements measure the liquidity and the strength of a business. On the
balance sheet; offsets calculate the real value of accounts receivables and fixed assets. Uncollectible
accounts receivables and depreciation reflect the offsets reported on financial statements. In
accordance with generally accepted accounting principles (GAAP); two methods compute the
uncollectible accounts receivable expense. Just like uncollectible accounts offset the value of
accounts receivables; so do depreciation expenses counteract the value of fixed assets. Also called
contra accounts, the journal entries accumulate and are then recorded on the balance sheet.
Part One – Uncollected Receivables The first technique is the write–off method. Small companies
with a small number of uncollected accounts receivables, or, bad debts; utilize this process. Once a
customer account becomes worthless, a write–off occurs. Immediately, the write–off is recorded in
the journal; applied directly to the uncollectible customer account. The first step in this journal
entry; debit the customer's accounts receivable account. In the next entry; credit the allowance for
doubtful accounts. With this process, an accumulation of entries are completed during the period, as
customer accounts become uncollectible. The book "Financial Accounting" (Duchac, Reeve,
Warren, 2014) states: "At the end of a period, Allowance for Doubtful Accounts will normally have
a balance." Second, the

Impact Of Depreciation On The Construction Industry Essay
As part of the business and finance module, I am require to write a report, discussing how
depreciation impacts a firm in the construction industry. Within this report I will discuss different
areas of depreciation such as what is depreciation? , causes of depreciation, its importance in the
construction industry, how depreciation affects profits and how depreciation can be measured. I will
also discuss the different methods for calculating depreciation and the effects on accounts if
depreciation is not accounted for. In this report, I will be giving examples of fixed assets that are
common to the construction industry and also give examples of how depreciation is calculated.
What is Depreciation?
Depreciation is the reduction in the value of certain fixed assets. It is a periodic reduction of fixed
assets, usually done every year. Fixed assets are assets that add value to the company. Examples of
fixed assets that can be depreciated are vehicles, buildings, machinery, equipment and fixture and
fittings. The only fixed asset that is not depreciated is land, because it is not worn–out overtime,
unless natural resources are being exploited. When a company buys a new fixed asset it doesn't
account for the full cost of it as one single large expense, instead the expense is spread over the life
time of the asset. This is done by depreciating the asset. For example a company purchases a CNC
router for €50,000 and will be used for five year. If they pay the full amount in the

Federal Taxation Ch 6 Solution Manual
73
Chapter 6 Deductions: General Concepts and Trade or Business Deductions
SUMMARY OF CHAPTER
Tax deductions are allowed to taxpayers only if specifically authorized by the Internal Revenue
Code. Deductions allowable to individual taxpayers fall into four categories: trade or business
expenses, expenses incurred for the production of income, losses, and personal expenses. In addition
to discussing the general requirements for deductibility for each of the above types of expenses, this
chapter also discusses the tax treatment of many commonly encountered expenses incurred by
taxpayers, from trade or business expenses such as rent, insurance, interest, taxes, bad debts, etc. to
employee business expenses (travel, transportation, etc.) to ... Show more content on
Helpwriting.net ...
Personal expenses deducted as itemized deductions are discussed in Chapter 8.
Trade or Business Deductions
¶6201 Overview–Code Sec. 162 Under Code Sec. 162, all ordinary, necessary and reasonable
expenses incurred in carrying on a trade or business activity are deductible. This is true whether the
taxpayer's business activities are structured as a sole proprietor, a partnership, or a corporation.
Allowable trade or business expenses incurred by individuals are deductible "for" AGI, usually on
Schedule C, attached to Form 1040. ¶6205 General Criteria There are four requirements for an
expense to be deductible as a trade or business expense: (1) It must be related to carrying on a trade
or business activity (as opposed, for example, to a hobby activity); (2) It must be ordinary and
necessary; (3) It must be reasonable; and (4) It must be paid or incurred during the taxable year.
¶6215 Expense Must Be Incurred in a Trade or Business Activity A deduction is authorized by Code
Sec. 162 only if the expenditure is paid or incurred in an activity that constitutes a trade or business.
The purpose of this requirement is to deny deductions for expenses incurred in activities that are
primarily personal in nature. Business status requires both a profit motive and a sufficient degree of
taxpayer involvement in the activity to distinguish the activity from a passive

Essay on Straight-line Depreciation
Unit 3
Acquisitions and Payment
Balls and Bats, Inc. purchased equipment on January 1, 2005, at a cost of $100,000. The estimated
useful life is 4 years with a salvage value of $10,000.
The purchase of long–lived assets are daily, quarterly and yearly occurrences for many corporations.
The cost allocation of the asset is shown through the method of depreciation a company uses. The
method a company chooses to incorporate should be one that most effectively matches expenses
with the revenues produced. The method that most select is that of straight–line depreciation, which
"spreads the depreciable value evenly over the useful life of an asset." (Horngren, Sundem, Elliott,
& Philbrick 2006, p.342) Depreciation schedules reflect how ... Show more content on
Helpwriting.net ...
Second, figure out depreciation expense by ignoring the residual value and multiplying the assets
beginning net book value by the DBB rate.
Total Acquisition cost= $100,000
Straight–line rate= 100%/4= 25%
DDB rate= 2* 25%=50% Double–declining Balance Annual Book Depreciation value
At Acquisition $ 100,000
Year 1 $ 50,000 $ 50,000
Year 2 $ 25,000 $ 25,000
Year 3 $ 12,500 $ 12,500
Year 4 $ 6,250 $ 6,250
Total $ 93,750 The use of straight–line depreciation would result in a higher net income due to the
fact that the depreciation for 2005 using this method is $22,500 versus $50,000 using the double–
declining balance method. The higher depreciation decreases the net income, but straight–line gives
us a higher net income. Regarding income taxes and how it relates to the depreciation method
management would have to look at this in a different light. Depreciation expense is tax deductible so
management would be better off if it used double–declining balance method due to the fact that the
higher the depreciation the lower the income taxes will be. This means the income taxes paid from
cash would be lower. Also, depreciation can have a cash benefit, which reflects in the cash flows
statement. In conclusion, management should consider using this

Depreciation and Sale of Asset
Depreciation is the decline in the future economic benefits of a depreciable non–current asset
through wear and tear and obsolescence. It is an allocation process. It can be calculated by two main
methods, each reflecting in a distinct prospect in the way the asset is used. Depreciation is to be
treated as an estimated expense that does not set aside cash for the replacement of a non–current
asset. In determining the cost of acquisition of the lathes, any capital expenditure made must be
added to the purchase price of the lathes. This amount will be considered as the historical cost and
will be used in calculating the depreciation expense Depreciation is the allocation of the cost of a
non–current asset less its estimated ... Show more content on Helpwriting.net ...
This expenditure is known as capital expenditure and is usually of a once–off nature. Examples of
capital expenditure are, upgrading machine parts of the lathes to achieve an improvement in the
quality or productivity of the output. Another type of expenditure that can be made is revenue
expenditure. Revenue expenditure is expenditure on assets that contribute to the revenue earning
capacity, but will be used up within an accounting period. This expenditure is not added to the asset
value but deducted from the revenue to find the profit. Examples of revenue expenditure include,
advertising of a manufacturing business any repairs made to non–current assets, in this case the
lathes. To calculate the cost of the acquisition of the lathes, the capital expenditures that are made,
need to be added to the purchase price of the lathes. These expenditures may include importing the
lathes into the country, installation expenses and any other costs that occur which will contribute to
the future economic benefit of the business for more than one accounting period. To conclude, W.
Wally should use the reducing balance method to depreciate his lathes as they will contribute more
in their earlier years and should therefore have more of their cost allocated in the early years. He
should be aware that depreciation is a process of

Depreciation and Corn
This memorandum provides the financial positions of Pemsah's and Sihathor's farm after one year of
harvest. Part I discusses the policies and procedures for the statement of operations, the corn flows
statement, and performance measures. Part II consists of the policies and procedures for the
statement of position, the performance measures for statement of position, and the effects of the
mice problem on all three statements. PART I Policies and Procedures for Statement of Operations
We prepared statements of each farm's operations that illustrate the performances of the farms, in
terms of sacks of corn, during the first harvest year. Income before Royal Taxes is equal to the
harvested sacks of corn less operating costs. Sihathor's ... Show more content on Helpwriting.net ...
As previously discussed, Amenhotep assessed the present value of the annuity at 95 sacks of corn.
Therefore, at the end of the harvest Sihathor's remaining pension liability was 93 sacks of corn due
to his payment to the widow. For construction payable, Sihathor's building was valued at 1,600
sacks of corn and Pemsah's was valued at 1,100 sacks of corn. Sihathor and Pemsah contracted with
a construction firm and agreed to pay 100 sacks of corn upon its completion causing them to owe
1,500 sacks and 1,000 sacks, respectively. Performance Measures The return on equity (ROE) is a
measure of how well a noble uses investment sacks of corn to generate a growth. It is calculated by
dividing the net income by the average equity. Sihathor's ROE was 6.758% (24,143 divided by
357,271.5). Pemsah's ROE was 6.984% (18,395 divided by 263,397.7). Also calculated was the
growth in assets, which is the ending assets divided by the beginning assets. Sihathor's growth in
assets totaled to 107.27% (389,086 divided by 362,700). Pemsah's growth in assets totaled 111.65%
(291,620 divided by 261,200). The final measure of the performance was the return on assets
(ROA), which is found by dividing the net income by the average assets. The ROA tells the Chief
Scribe how a noble's assets generate revenue. Sihathor's ROA totaled to 6.423% (24,143 divided by
375,893), while Pemsah's ROA totaled to 6.655% (18,395 divided by

Accounting: Depreciation and Cash Flow
(10–8) NPVs, IRRs, and MIRRs for Independent Projects
Edelman Engineering is considering including two pieces of equipment, a truck and an overhead
pulley system, in this year's capital budget. The projects are independent. The cash outlay for the
truck is $17,100 and that for the pulley system is $22,430. The firm's cost of capital is 14%. After–
tax cash flows, including depreciation, are as follows:
Year Truck Pulley
1 $5,100 $7,500
2 $5,100 $7,500
3 $5,100 $7,500
4 $5,100 $7,500
5 $5,100 $7,500
Calculate the IRR, the NPV, and the MIRR for each project, and indicate the correct accept–reject
decision for each. Year Truck Pulley
0 –$17,200 –$22,430
1 $5,100 $7,500
2 $5,100 $7,500
3 $5,100 $7,500
4 $5,100 ... Show more content on Helpwriting.net ...
If company fails to adjust expected inflection on their cost of capital then the cost of capital which
the company is using to discount expected cash flows will be lower than the inflection adjusted cost
of capital. As company is using lower cost of capital rate to discount their cash flows, the discounted
cash flow will be higher and calculated NPV will be lower.
Problem 11– 7
"New–Project Analysis"
You have been asked by the president of your company to evaluate the proposed acquisition of a
new spectrometer for the firm's R&D department. The equipment's basic price is $70,000, and
it would cost another $15,000 to modify it for special use by your firm. The spectrometer, which
falls into the MACRS 3–year class, would be sold after 3 years for $30,000. Use of the equipment
would require an increase in net working capital (spare parts inventory) of $4,000. The spectrometer
would have no effect on revenues, but it is expected to save the firm $25,000 per year in before–tax
operating costs, mainly labor. The firm's marginal federal–plus–state tax rate is 40%.
a. What is the net cost of the spectrometer? (That is, what is the Year–0 net cash flow?)

b. What are the net operating cash flows in Years 1, 2, and 3? (26220,30300,20100)
c. What is the additional (nonoperating) cash flow in Year 3? 24380
d. If the project's cost of capital is 10%, should the spectrometer be

Depreciation Electric Cars
Another way to save money with electric vehicles is through the factor of depreciation. Now every
car gas or electric will go through depreciation one way or another, but electric vehicles have a
lower depreciation factor than gas power vehicles do. For most new gas powered cars they, "will
lose approximately 20 percent of its value in the first year and 15 percent each year after that."
(Lander). While with the fully electric "Tesla Model S has a value retention of 83%, 71% and 57%
respectively after one, two and three years – much higher than any petroleum fueled car in its
category." according to the website Just Energy Solutions. The depreciation of electric cars a kept
significantly lower than gas cars due to the incentives that many states and countries are currently
giving out. ... Show more content on Helpwriting.net ...
Expenses that both gas and electric cars have are tires, brakes, and windshield wipes. However,
vehicle maintenance costs can rack up over the lifespan of a car, especially with ICEs (internal
combustion engines), engine maintenance can be very expensive, even more so with an older car.
Add in changing oil, engine coolant, and other miscellaneous fluids the money can add up very
quickly over time. As for electric vehicles, they don't have these expenses. Although, they are not
without expenses. For example, a new battery could cost a significant amount of money to replace,
but with these cars mostly being very new and under warranty this would not be an issue the owner
would have to worry about paying for. Electric cars, even with the proposed risk of replacing a
battery, are still significantly more cost effective over the long run than gas powered

Depreciation
Rupee Depreciation: Probable Causes and Outlook
The Indian Rupee has depreciated significantly against the US Dollar marking a new risk for Indian
economy. Till the beginning of the financial year (Apr 11–Mar 12) very few had expected Rupee to
depreciate with most hinting towards either appreciation or status quo in the rupee levels. Those few
who had even anticipated may not have imagined the scale of depreciation with rupee touching a
new low of around Rs 54 to the US Dollar. What is even more interesting to note is that when other
countries are trying to play currency wars and trying to keep their currencies devalued, India is
trying to prevent depreciation of the currency. (Read our previous report for a review of the
situation– ... Show more content on Helpwriting.net ...
Fiscal Deficit: Fiscal deficits play a role especially during currency crisis. If a country follows a
fixed exchange rates and also runs a large fiscal deficit it could lead to speculative attacks on the
currency. Higher deficits imply government might resort to using forex reserves to finance its
deficit. This leads to lowering of the reserves and in case there is a speculation on the currency, the
government may not have adequate reserves to protect the fixed value of the currency. This pushes
the government to devalue the currency. So, though fiscal deficits do not have a direct bearing on
foreign exchange markets, they play a role in case there is a crisis. Global economic conditions:
Barring domestic conditions, global conditions impact the currency movement as well. In times of
high uncertainty as seen lately, most currencies usually depreciate against US Dollar as it is seen as
a safe haven currency. Hence even over a longer term, multiple factors determine an exchange rate
with each one playing an important role over time.
II. Rupee Movement since 1991
If we look at India's Balance of Payments since 1970–71, we see that external account mostly
balances in 1970s. Infact in second half of 1970s there is a current account surplus. This was a
period of import substitution strategy and India followed a closed economy model.

Depreciation vs Depletion
The concept and practice of depreciation and depletion play an integral part in a company 's cash
flow and profit or loss statements. Depreciation, according to investopedia is a method of allocating
the cost of a tangible asset over its useful life. Depletion is very similar to depreciation with very
subtle differences, the first one being what is depreciated verses depleted. All assets (except land)
are depreciated but the assets with natural resources are depleted. The methods on how depreciation
and depletion are calculated vary as well. Each will be visited in this essay.
Using depreciation, the time based usefulness of an asset of course varies depending on what the
asset is. If it is a van for example, its usefulness might be ... Show more content on Helpwriting.net
...
Example: A copy machine is purchased for $3,217.89. The expected life is 4 years. Using double
declining balance the depreciation would be calculated as follows:
factor = 2 * (1/4) = 0.50
Year
Depreciable
Basis
Depreciation
Calculation
Depreciation
Expense
Accumulated
Depreciation
1

3,217.89
3,217.89 * 0.5
1,608.95
1,608.94
2
1,608.94
1,608.94 * 0.5
804.47
2,413.41
3
804.48
804.48 * 0.5
402.24
2,815.65
4
402.24
402.24 * 0.5
201.12
3,016.77
Sum of the Years Digits
The first step is to sum the digits or numbers starting with the life and going back to one. For
example, an asset with a life of 5 would have a sum of digits as follows: 5+ 4+ 3 +2 + 1 = 15
To find the percentage for each year divide the year 's digit by the sum. In the example above the
percentage would be calculated as follows:
Year 1

5 / 15 = 33.34%
Year 2
4 / 15 = 26.67%
Year 3
3 / 15 = 20 %
Year 4
2 / 15 = 13.33 %
Year 5
1/ 15 = 6.67%
Example: A conference table is purchase for 1,467.89. The expected life is 5 years. Since this is a 5
year asset the yearly factors have been calculated above.
Year
Depreciation
Calculation
Depreciation
Expense
1
1,467.89 * 33.34

Depreciation Methods Explained

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