This document discusses long-lived non-monetary assets and their amortization. It defines long-lived assets as assets that provide benefits for several future years and explains that if benefits are expected in future periods, the costs are capitalized as assets. It provides examples of different types of long-lived assets like land, plant and equipment, and intangible assets. It also discusses various methods for allocating the costs of long-lived assets, like depreciation and amortization, over their expected useful lives.
This document provides an overview of depreciation accounting. It defines depreciation as the permanent decrease in the value of an asset due to factors like wear and tear, obsolescence, or the passage of time. The document outlines various causes of depreciation including wear and tear, exhaustion, effluxion of time, weather effects, and permanent declines in asset value. It also discusses objectives of recording depreciation such as correctly calculating profits, complying with legal requirements, and maintaining the integrity of capital. Finally, the document introduces different depreciation methods used in accounting like the straight-line method, declining balance method, and annuity method.
1) The document discusses depreciation accounting, including definitions, objectives, factors affecting depreciation amounts, and methods of calculating depreciation.
2) The two most common depreciation methods are the straight-line method, which allocates equal amounts of depreciation each period, and the reducing balance method, which allocates higher amounts initially that decrease over time.
3) Other topics covered include accounting entries for depreciation, illustrations of depreciation calculations using different methods, and the sum-of-years digits method.
This document discusses depreciation, provisions, and reserves. It begins by defining depreciation as a fall in the value of an asset due to usage, the passage of time, obsolescence, or accidents. It then discusses the causes, need, and factors affecting depreciation. Finally, it explains the straight-line and written down value methods of charging depreciation, as well as related terms like depletion and amortization.
This document discusses depreciation accounting. It defines depreciation accounting as allocating the cost of a tangible capital asset over its estimated useful life. Depreciation represents the gradual conversion of the asset's capitalized cost into an expense that is allocated to different periods. The document discusses different terms used for allocating costs of different asset types, such as depreciation for physical assets, depletion for natural resources, and amortization for intangible assets. It also discusses factors that influence the amount of depreciation charged each year, such as original cost, estimated useful life, additions made to the asset, and estimated residual value.
1. The document discusses various methods of accounting for depreciation of fixed assets, including straight-line, units-of-production, and declining balance methods.
2. It explains that depreciation involves allocating the cost of tangible assets over the periods they are expected to provide benefits.
3. Key factors that determine depreciation expenses each year include initial asset cost, estimated residual value, useful life, and the depreciation method used.
- Depreciation is an accounting process where a company allocates the cost of an asset over its useful life. It records how the value of an asset declines over time.
- Each year, a company records a depreciation expense to allocate a portion of the asset's cost to that fiscal year. This spreads the initial cost of the asset over its useful life.
- There are different methods for calculating and recording depreciation expenses, but the goal is to allocate an asset's cost over its useful life and reflect its declining value on the company's financial statements. Depreciation is a non-cash expense that impacts metrics like EBITDA that are used to analyze company profitability.
This document provides an overview of depreciation accounting. It defines depreciation as the permanent decrease in the value of an asset due to factors like wear and tear, obsolescence, or the passage of time. The document outlines various causes of depreciation including wear and tear, exhaustion, effluxion of time, weather effects, and permanent declines in asset value. It also discusses objectives of recording depreciation such as correctly calculating profits, complying with legal requirements, and maintaining the integrity of capital. Finally, the document introduces different depreciation methods used in accounting like the straight-line method, declining balance method, and annuity method.
1) The document discusses depreciation accounting, including definitions, objectives, factors affecting depreciation amounts, and methods of calculating depreciation.
2) The two most common depreciation methods are the straight-line method, which allocates equal amounts of depreciation each period, and the reducing balance method, which allocates higher amounts initially that decrease over time.
3) Other topics covered include accounting entries for depreciation, illustrations of depreciation calculations using different methods, and the sum-of-years digits method.
This document discusses depreciation, provisions, and reserves. It begins by defining depreciation as a fall in the value of an asset due to usage, the passage of time, obsolescence, or accidents. It then discusses the causes, need, and factors affecting depreciation. Finally, it explains the straight-line and written down value methods of charging depreciation, as well as related terms like depletion and amortization.
This document discusses depreciation accounting. It defines depreciation accounting as allocating the cost of a tangible capital asset over its estimated useful life. Depreciation represents the gradual conversion of the asset's capitalized cost into an expense that is allocated to different periods. The document discusses different terms used for allocating costs of different asset types, such as depreciation for physical assets, depletion for natural resources, and amortization for intangible assets. It also discusses factors that influence the amount of depreciation charged each year, such as original cost, estimated useful life, additions made to the asset, and estimated residual value.
1. The document discusses various methods of accounting for depreciation of fixed assets, including straight-line, units-of-production, and declining balance methods.
2. It explains that depreciation involves allocating the cost of tangible assets over the periods they are expected to provide benefits.
3. Key factors that determine depreciation expenses each year include initial asset cost, estimated residual value, useful life, and the depreciation method used.
- Depreciation is an accounting process where a company allocates the cost of an asset over its useful life. It records how the value of an asset declines over time.
- Each year, a company records a depreciation expense to allocate a portion of the asset's cost to that fiscal year. This spreads the initial cost of the asset over its useful life.
- There are different methods for calculating and recording depreciation expenses, but the goal is to allocate an asset's cost over its useful life and reflect its declining value on the company's financial statements. Depreciation is a non-cash expense that impacts metrics like EBITDA that are used to analyze company profitability.
Fixed Asset Process activities, end to end activities of fixed asset in the company, capitalisation, journal entries, fixed asset cycle, procurement cycle, types of depreciation, depreciation methods, Cost and management course study material
The document discusses various aspects of depreciation. It defines depreciation as the permanent and continuing diminution in the quality, quantity or value of a fixed asset over time due to factors like usage, obsolescence and changes in technology. It then explains the need to charge depreciation to accurately calculate profits, show asset values reasonably and maintain the original investment in the asset. The document also discusses the factors affecting the computation of depreciation and various methods of calculating depreciation like the straight line method, written down value method, and sum of years' digit method.
This document summarizes the key principles of IAS 16, which provides guidance on accounting for property, plant, and equipment. Some of the main points covered include: initially measuring property, plant, and equipment at cost; depreciating the asset over its useful life; testing for impairment if the carrying amount is not recoverable; and allowing the alternative treatment of revaluing assets to fair value. Extensive disclosure requirements are also outlined relating to classes of property, plant and equipment, depreciation methods, and revalued amounts.
Depreciation reduces the value of assets over time. It is calculated based on the estimated useful life of the asset which can be determined by factors like usage, time, or lease period. There are various causes of depreciation including wear and tear, exhaustion, depletion, deterioration, obsolescence, and weather damage. Depreciation must be accounted for to determine true profit, asset value, and financial position of a company. Straight line and double declining balance are common depreciation methods that allocate an asset's cost over its useful life.
Depreciation is the gradual decrease in the value of an asset over time due to factors like wear and tear, damage, obsolescence, or age. It is calculated annually and deducted from the value of the asset to reflect its usage and reduced resale value. There are several methods for calculating depreciation, including straight-line, diminishing balance, and sum of years digits, with straight-line being the most common and simplest approach of evenly deducting depreciation over the asset's useful life. Depreciation is an important accounting concept that helps match the cost of long-term assets to the periods that benefit from their use.
Chapter 10 ASSETS NATURAL RESOURCES AND INTANGIBLE ASSETS.pptJemalSeid25
This document provides an overview and learning objectives for Chapter 10 of a financial accounting textbook. The chapter covers accounting for plant assets, natural resources, and intangible assets. It discusses determining the cost of plant assets, different depreciation methods including straight-line and units-of-activity, accounting for expenditures on assets during their useful lives, disposal of assets, depletion of natural resources, and reporting of these asset types.
This document summarizes IAS 16, which provides guidance on accounting for property, plant, and equipment. It defines property, plant, and equipment and outlines the requirements for initial recognition, measurement, depreciation, and impairment. Key aspects covered include determining the cost of self-constructed or exchanged assets, capitalizing major repairs/replacements, and allowing use of either the cost model or revaluation model for subsequent measurement.
PPE refers to tangible items held for use in production or supply of goods and services with an expected useful life of more than one year. The standard outlines the accounting treatment for PPE, including initial recognition at cost, subsequent measurement using either the cost or revaluation model, depreciation, and derecognition. It also provides disclosure requirements such as the measurement basis, depreciation methods used, carrying amounts, and details related to revalued assets.
This document discusses depreciation accounting and various depreciation methods. It begins by defining depreciation as the reduction in value of an asset due to factors like usage, passage of time, wear and tear, etc. Depreciation is allocated over the useful life of an asset using methods like straight line, reducing balance, etc. The document then discusses various depreciation methods in detail like sinking fund method, insurance policy method, annuity method, and machine hour rate method. It also discusses accounting standard 6 related to depreciation accounting.
This document discusses accounting for depreciation of fixed assets. It defines fixed assets as long-term assets used to generate future benefits for over a year. Depreciation is the allocation of the cost of fixed assets over their useful lives. Common methods of depreciation include straight-line and declining balance. The document outlines the costs that should be capitalized as part of the fixed asset value and costs that are considered revenue expenses. It also discusses accounting entries for purchase and installation of fixed assets and the objectives of recording depreciation.
Ind AS 16 prescribes the accounting treatment for property, plant and equipment. The standard aims to provide information about an entity's investment in property, plant and equipment and the changes in such investment. It covers the recognition and measurement of property, plant and equipment, depreciation, and impairment losses. The principal issues are recognition of assets, determination of carrying amounts, depreciation charges, and impairment losses.
This document provides an overview of various accounting concepts related to financial accounting. It discusses accounting treatments for bad debts, methods for writing off bad debts such as direct write-off and provision methods. It also covers topics such as aging schedules, percentage of sales method, bad debt recovery, stock/inventory costing methods including FIFO, LIFO, weighted average. The document also discusses perpetual and periodic inventory systems, accounting for property, plant and equipment, depreciation methods, revaluation of assets, amortization of intangibles, depletion and more.
This document discusses accelerated cost recovery and depreciation. It covers topics such as capitalized costs versus operating expenses, depreciation legislation including MACRS, terminology, adjusted tax basis, repair regulations, depreciation methods, conventions for personal and real property, section 179 expensing, and bonus depreciation. Key points include how depreciation and amortization allow businesses to recover capitalized costs of assets over time for tax purposes.
If any of the above conditions is not satisfied, PPE cannot be recorded.
Above recognition, the principle is to be applied to the ‘Initial’ recognition of PPE and
‘Subsequent’ recognition.
This document discusses the key aspects of IND AS 16 regarding the accounting treatment of property, plant, and equipment. It covers the scope of IND AS 16, initial recognition and measurement of PPE at cost, subsequent measurement using either the cost or revaluation model, and depreciation of PPE over its useful life. PPE are tangible assets held for use in production, rental, or administration that are expected to be used for more than one period.
Fixed assets are long-term assets used by a business over multiple accounting periods. They include property, equipment, furniture, and intangible assets. The cost of a fixed asset includes its purchase price plus any costs to prepare the asset for use. Capital expenditures are added to the asset's value in the accounting records. Acquisition cost is the original historical cost of the asset. Determining cost involves considering various fees, duties, and discounts. Borrowing costs related to asset construction may also be included in the asset's total cost.
This document discusses depreciation, which refers to the decline in value of fixed assets over time due to usage, age, or obsolescence. Depreciation is a non-cash expense that is allocated over the useful life of an asset to match the cost of the asset with the periods in which it provides benefits. It is necessary to account for depreciation to arrive at accurate profit figures and reflects the expired cost associated with the usage of a fixed asset. The document also discusses the meaning and methods of calculating depreciation according to accounting standards.
The document discusses four main types of maintenance programs: reactive, preventive, predictive, and reliability centered maintenance. Reactive maintenance involves fixing equipment after it breaks, while preventive maintenance uses scheduled maintenance tasks. Predictive maintenance bases maintenance on equipment condition monitoring. Reliability centered maintenance takes a systematic approach to prioritize equipment and match maintenance to critical needs using predictive techniques. The document provides advantages and disadvantages of each approach. Predictive and reliability centered maintenance can provide the greatest cost savings through reduced downtime and failures.
The document discusses key concepts related to accounting for property, plant and equipment (PPE) as per Indian Accounting Standard (IndAS) 16. It covers initial recognition of PPE at cost, components of cost, subsequent measurement using cost or revaluation model, depreciation methods, impairment and derecognition. It also includes examples on capitalization of borrowing costs, treatment of restoration costs, and practice questions related to accounting for PPE.
Event Report - SAP Sapphire 2024 Orlando - lots of innovation and old challengesHolger Mueller
Holger Mueller of Constellation Research shares his key takeaways from SAP's Sapphire confernece, held in Orlando, June 3rd till 5th 2024, in the Orange Convention Center.
At Techbox Square, in Singapore, we're not just creative web designers and developers, we're the driving force behind your brand identity. Contact us today.
Fixed Asset Process activities, end to end activities of fixed asset in the company, capitalisation, journal entries, fixed asset cycle, procurement cycle, types of depreciation, depreciation methods, Cost and management course study material
The document discusses various aspects of depreciation. It defines depreciation as the permanent and continuing diminution in the quality, quantity or value of a fixed asset over time due to factors like usage, obsolescence and changes in technology. It then explains the need to charge depreciation to accurately calculate profits, show asset values reasonably and maintain the original investment in the asset. The document also discusses the factors affecting the computation of depreciation and various methods of calculating depreciation like the straight line method, written down value method, and sum of years' digit method.
This document summarizes the key principles of IAS 16, which provides guidance on accounting for property, plant, and equipment. Some of the main points covered include: initially measuring property, plant, and equipment at cost; depreciating the asset over its useful life; testing for impairment if the carrying amount is not recoverable; and allowing the alternative treatment of revaluing assets to fair value. Extensive disclosure requirements are also outlined relating to classes of property, plant and equipment, depreciation methods, and revalued amounts.
Depreciation reduces the value of assets over time. It is calculated based on the estimated useful life of the asset which can be determined by factors like usage, time, or lease period. There are various causes of depreciation including wear and tear, exhaustion, depletion, deterioration, obsolescence, and weather damage. Depreciation must be accounted for to determine true profit, asset value, and financial position of a company. Straight line and double declining balance are common depreciation methods that allocate an asset's cost over its useful life.
Depreciation is the gradual decrease in the value of an asset over time due to factors like wear and tear, damage, obsolescence, or age. It is calculated annually and deducted from the value of the asset to reflect its usage and reduced resale value. There are several methods for calculating depreciation, including straight-line, diminishing balance, and sum of years digits, with straight-line being the most common and simplest approach of evenly deducting depreciation over the asset's useful life. Depreciation is an important accounting concept that helps match the cost of long-term assets to the periods that benefit from their use.
Chapter 10 ASSETS NATURAL RESOURCES AND INTANGIBLE ASSETS.pptJemalSeid25
This document provides an overview and learning objectives for Chapter 10 of a financial accounting textbook. The chapter covers accounting for plant assets, natural resources, and intangible assets. It discusses determining the cost of plant assets, different depreciation methods including straight-line and units-of-activity, accounting for expenditures on assets during their useful lives, disposal of assets, depletion of natural resources, and reporting of these asset types.
This document summarizes IAS 16, which provides guidance on accounting for property, plant, and equipment. It defines property, plant, and equipment and outlines the requirements for initial recognition, measurement, depreciation, and impairment. Key aspects covered include determining the cost of self-constructed or exchanged assets, capitalizing major repairs/replacements, and allowing use of either the cost model or revaluation model for subsequent measurement.
PPE refers to tangible items held for use in production or supply of goods and services with an expected useful life of more than one year. The standard outlines the accounting treatment for PPE, including initial recognition at cost, subsequent measurement using either the cost or revaluation model, depreciation, and derecognition. It also provides disclosure requirements such as the measurement basis, depreciation methods used, carrying amounts, and details related to revalued assets.
This document discusses depreciation accounting and various depreciation methods. It begins by defining depreciation as the reduction in value of an asset due to factors like usage, passage of time, wear and tear, etc. Depreciation is allocated over the useful life of an asset using methods like straight line, reducing balance, etc. The document then discusses various depreciation methods in detail like sinking fund method, insurance policy method, annuity method, and machine hour rate method. It also discusses accounting standard 6 related to depreciation accounting.
This document discusses accounting for depreciation of fixed assets. It defines fixed assets as long-term assets used to generate future benefits for over a year. Depreciation is the allocation of the cost of fixed assets over their useful lives. Common methods of depreciation include straight-line and declining balance. The document outlines the costs that should be capitalized as part of the fixed asset value and costs that are considered revenue expenses. It also discusses accounting entries for purchase and installation of fixed assets and the objectives of recording depreciation.
Ind AS 16 prescribes the accounting treatment for property, plant and equipment. The standard aims to provide information about an entity's investment in property, plant and equipment and the changes in such investment. It covers the recognition and measurement of property, plant and equipment, depreciation, and impairment losses. The principal issues are recognition of assets, determination of carrying amounts, depreciation charges, and impairment losses.
This document provides an overview of various accounting concepts related to financial accounting. It discusses accounting treatments for bad debts, methods for writing off bad debts such as direct write-off and provision methods. It also covers topics such as aging schedules, percentage of sales method, bad debt recovery, stock/inventory costing methods including FIFO, LIFO, weighted average. The document also discusses perpetual and periodic inventory systems, accounting for property, plant and equipment, depreciation methods, revaluation of assets, amortization of intangibles, depletion and more.
This document discusses accelerated cost recovery and depreciation. It covers topics such as capitalized costs versus operating expenses, depreciation legislation including MACRS, terminology, adjusted tax basis, repair regulations, depreciation methods, conventions for personal and real property, section 179 expensing, and bonus depreciation. Key points include how depreciation and amortization allow businesses to recover capitalized costs of assets over time for tax purposes.
If any of the above conditions is not satisfied, PPE cannot be recorded.
Above recognition, the principle is to be applied to the ‘Initial’ recognition of PPE and
‘Subsequent’ recognition.
This document discusses the key aspects of IND AS 16 regarding the accounting treatment of property, plant, and equipment. It covers the scope of IND AS 16, initial recognition and measurement of PPE at cost, subsequent measurement using either the cost or revaluation model, and depreciation of PPE over its useful life. PPE are tangible assets held for use in production, rental, or administration that are expected to be used for more than one period.
Fixed assets are long-term assets used by a business over multiple accounting periods. They include property, equipment, furniture, and intangible assets. The cost of a fixed asset includes its purchase price plus any costs to prepare the asset for use. Capital expenditures are added to the asset's value in the accounting records. Acquisition cost is the original historical cost of the asset. Determining cost involves considering various fees, duties, and discounts. Borrowing costs related to asset construction may also be included in the asset's total cost.
This document discusses depreciation, which refers to the decline in value of fixed assets over time due to usage, age, or obsolescence. Depreciation is a non-cash expense that is allocated over the useful life of an asset to match the cost of the asset with the periods in which it provides benefits. It is necessary to account for depreciation to arrive at accurate profit figures and reflects the expired cost associated with the usage of a fixed asset. The document also discusses the meaning and methods of calculating depreciation according to accounting standards.
The document discusses four main types of maintenance programs: reactive, preventive, predictive, and reliability centered maintenance. Reactive maintenance involves fixing equipment after it breaks, while preventive maintenance uses scheduled maintenance tasks. Predictive maintenance bases maintenance on equipment condition monitoring. Reliability centered maintenance takes a systematic approach to prioritize equipment and match maintenance to critical needs using predictive techniques. The document provides advantages and disadvantages of each approach. Predictive and reliability centered maintenance can provide the greatest cost savings through reduced downtime and failures.
The document discusses key concepts related to accounting for property, plant and equipment (PPE) as per Indian Accounting Standard (IndAS) 16. It covers initial recognition of PPE at cost, components of cost, subsequent measurement using cost or revaluation model, depreciation methods, impairment and derecognition. It also includes examples on capitalization of borrowing costs, treatment of restoration costs, and practice questions related to accounting for PPE.
Event Report - SAP Sapphire 2024 Orlando - lots of innovation and old challengesHolger Mueller
Holger Mueller of Constellation Research shares his key takeaways from SAP's Sapphire confernece, held in Orlando, June 3rd till 5th 2024, in the Orange Convention Center.
At Techbox Square, in Singapore, we're not just creative web designers and developers, we're the driving force behind your brand identity. Contact us today.
Structural Design Process: Step-by-Step Guide for BuildingsChandresh Chudasama
The structural design process is explained: Follow our step-by-step guide to understand building design intricacies and ensure structural integrity. Learn how to build wonderful buildings with the help of our detailed information. Learn how to create structures with durability and reliability and also gain insights on ways of managing structures.
Unveiling the Dynamic Personalities, Key Dates, and Horoscope Insights: Gemin...my Pandit
Explore the fascinating world of the Gemini Zodiac Sign. Discover the unique personality traits, key dates, and horoscope insights of Gemini individuals. Learn how their sociable, communicative nature and boundless curiosity make them the dynamic explorers of the zodiac. Dive into the duality of the Gemini sign and understand their intellectual and adventurous spirit.
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B2B payments are rapidly changing. Find out the 5 key questions you need to be asking yourself to be sure you are mastering B2B payments today. Learn more at www.BlueSnap.com.
Zodiac Signs and Food Preferences_ What Your Sign Says About Your Tastemy Pandit
Know what your zodiac sign says about your taste in food! Explore how the 12 zodiac signs influence your culinary preferences with insights from MyPandit. Dive into astrology and flavors!
Discover timeless style with the 2022 Vintage Roman Numerals Men's Ring. Crafted from premium stainless steel, this 6mm wide ring embodies elegance and durability. Perfect as a gift, it seamlessly blends classic Roman numeral detailing with modern sophistication, making it an ideal accessory for any occasion.
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Navigating the world of forex trading can be challenging, especially for beginners. To help you make an informed decision, we have comprehensively compared the best forex brokers in India for 2024. This article, reviewed by Top Forex Brokers Review, will cover featured award winners, the best forex brokers, featured offers, the best copy trading platforms, the best forex brokers for beginners, the best MetaTrader brokers, and recently updated reviews. We will focus on FP Markets, Black Bull, EightCap, IC Markets, and Octa.
Brian Fitzsimmons on the Business Strategy and Content Flywheel of Barstool S...Neil Horowitz
On episode 272 of the Digital and Social Media Sports Podcast, Neil chatted with Brian Fitzsimmons, Director of Licensing and Business Development for Barstool Sports.
What follows is a collection of snippets from the podcast. To hear the full interview and more, check out the podcast on all podcast platforms and at www.dsmsports.net
How are Lilac French Bulldogs Beauty Charming the World and Capturing Hearts....Lacey Max
“After being the most listed dog breed in the United States for 31
years in a row, the Labrador Retriever has dropped to second place
in the American Kennel Club's annual survey of the country's most
popular canines. The French Bulldog is the new top dog in the
United States as of 2022. The stylish puppy has ascended the
rankings in rapid time despite having health concerns and limited
color choices.”
SATTA MATKA SATTA FAST RESULT KALYAN TOP MATKA RESULT KALYAN SATTA MATKA FAST RESULT MILAN RATAN RAJDHANI MAIN BAZAR MATKA FAST TIPS RESULT MATKA CHART JODI CHART PANEL CHART FREE FIX GAME SATTAMATKA ! MATKA MOBI SATTA 143 spboss.in TOP NO1 RESULT FULL RATE MATKA ONLINE GAME PLAY BY APP SPBOSS
Storytelling is an incredibly valuable tool to share data and information. To get the most impact from stories there are a number of key ingredients. These are based on science and human nature. Using these elements in a story you can deliver information impactfully, ensure action and drive change.
Part 2 Deep Dive: Navigating the 2024 Slowdownjeffkluth1
Introduction
The global retail industry has weathered numerous storms, with the financial crisis of 2008 serving as a poignant reminder of the sector's resilience and adaptability. However, as we navigate the complex landscape of 2024, retailers face a unique set of challenges that demand innovative strategies and a fundamental shift in mindset. This white paper contrasts the impact of the 2008 recession on the retail sector with the current headwinds retailers are grappling with, while offering a comprehensive roadmap for success in this new paradigm.
2. 2
Educational Background
Accountant (1981), cum-laude, UGM
Registered Indonesian Accountant:D.2794
Master of Management (1988), College of
Economics and Management, University of the
Philippines
Doctor of Philosophy (2004), IPB
Certified Management Accountant (2000),
Australia
HP: 0811-89-42-73 Phone: 021-8616982
Email:wiwiek.daryanto@ipmi.ac.id
4. 4
4
Long-Lived Non-monetary
Assets and Their Amortization
Long-Lived Assets, assets that provide service
for several future years.
If the benefits are obtained in the current
period, the costs of the goods or services are
expenses.
If the benefits are expected in future periods,
the costs are assets in the current period and the
expenditures are said to be capitalized.
5. 5
5
Long-Lived Non-monetary
Assets and Their Amortization
The cost of the goods or services
should be matched with the
revenues that are obtained from the
periods.
The general name for the
matching process is amortization.
6. 6
6
Long-Lived Non-monetary
Assets and Their Amortization
Cash or
payable
X X
Benefits
beyond this
Period?
Capitalize
Expense
X X
X X
Assets Accounts
Retained Earnings
Y Y
Z Z
Y Y
Z Z
Amortization
Entries
Made
in
future
periods
As
benefits
are
received
Expenditure
(cost incurred)
7. 7
7
Long-Lived Non-monetary
Assets and Their Amortization
Type of Asset Method of Converting
to Expense
Tangible Assets
•Land
•Plant and equipment
•Natural resources
•Not amortized
•Depreciation
•Depletion
8. 8
8
Types of Long-Lived Assets
and Amortization Methods
Type of Asset Method of Converting
to Expense
Intangible Assets
•Goodwill
•Intangible Assets (other than
goodwill)-limited life
•Intangible Assets (other than
goodwill)-indefinite life
•Leasehold improvements
•Deferred charges
•Research and development costs
•Not amortized
•Amortization
•Not amortized
•Amortization
•Amortization
•Not capitalized
9. 9
CAPEX or OPEX ?
1. Low cost Items : CAPEX or OPEX
2. Repair and Maintenance : OPEX
3. Betterment/Improvement: CAPEX
4. Replacement : CAPEX or OPEX
11. 11
11
Types of Long-Lived Assets
• A tangible asset is an asset that has physical
substance, such as a building or a machine.
• An intangible asset, such as patent rights or
copyrights, has no physical substance. Many
such assets are referred to as intellectual
property.
• Long-tangible assets are listed on the B/S
under the heading “property, plant, and
equipment” or “fixed assets”.
12. 12
12
Types of Long-Lived Assets
• The accounting process of converting
the original cost of fixed assets to
expense is called depreciation.
• Natural resources, such as petroleum
and natural gas in the ground are
usually reported as a separate category
(but not after they have been taken out
of the ground and become inventory).
• The accounting process of converting
the cost of the natural resource assets
to expense is called depletion.
13. 13
13
Plant and Equipment:
Acquisition
• Low-Cost Items, items that have a low
unit cost, such as calculators and hand
tools, are charged immediately as
expenses, even though they may have
a long life. Each company sets its own
criteria for items that are to be
capitalized.
14. 14
14
Plant and Equipment:
Acquisition
• Repair and maintenance is work done to keep
an asset in good operating condition or to
bring it back to good operating condition if it
has broken down.
• Repair and maintenance costs are ordinarily
period costs; they are not added to the
capitalized cost of the asset.
• A betterment is added to the cost of the
asset.
15. 15
15
Plant and Equipment:
Acquisition
• The distinction between maintenance
expenses and betterments is this:
Maintenance keeps the asset in good
condition but in no better condition than
when it was purchased; a betterment
makes the asset better than it was
purchased or extend its useful life beyond
the original estimate of useful life.
• In practice the line between the two is
difficult to draw.
16. 16
16
Plant and Equipment:
Acquisition
• Replacement: may be either assets or
expenses, depending on how the asset
unit is defined.
• The replacement of an entire asset
results in the writing off of the old asset
and the recording of the new asset.
• The replacement of a component part
of an asset is maintenance expense.
17. 17
17
Items Included in Cost
• The governing principle is that the cost of
an item of property, plant, or equipment
includes all expenditures that are
necessary to make the asset ready for its
intended use.
• Despite the principle, many organizations
do not capitalize all the costs incurred to
make the asset ready to provide service.
• Some capitalize only the purchase price,
because it is simpler and to minimize
property taxes.
18. 18
18
Items Included in Cost
• Self-Constructed Assets
• The amount of capitalized cost includes
all the costs incurred in construction.
19. 19
19
PLANT AND EQUIPMENT:
DEPRECIATION
Why is depreciation an expense? The answer
is that the costs of all goods and services
consumed by an entity during an accounting
period are expenses.
The costs of insurance protection provided in
a year is an expense of that year even
though the insurance premium was paid two
or three years previously.
20. 20
20
PLANT AND EQUIPMENT:
DEPRECIATION
Depreciation expenses is conceptually
just like insurance expenses.
The principle difference is that the
fraction of total cost of an item of plant
and equipment that is expense in a
given year is difficult to estimate,
whereas the fraction of the total cost of
an insurance policy that is an expense
in a given year can be easily calculated.
21. 21
21
PLANT AND EQUIPMENT:
DEPRECIATION
The useful life of a tangible long-
lived asset is limited by either
deterioration or obsolescence.
Deterioration is physical process of
wearing out.
Dep/yr=(Acq.Cost-Est of Res V)/
Est. of Economic Life
22. 22
22
PLANT AND EQUIPMENT:
DEPRECIATION
Obsolescence refers to loss of usefulness
because of the development of improved
equipment of processes, changes in style, or
other causes not related to the physical
condition of the asset.
We will refer to the time until an asset wears
out of its physical life, and the time until it
becomes obsolete or is expected to be
disposed of as its service life.
23. 23
23
PLANT AND EQUIPMENT:
DEPRECIATION
Although the word depreciation is some
times used as referring only to physical
deterioration (“wear and tear”), this usage is
incorrect.
In many cases a piece of equipment’s
service life is shorter than its physical life;
computers are a good example.
24. 24
24
Judgments Required
1. The service life of the asset-the number of
accounting periods over which the asset
will be useful to the specific entity that
owns it.
2. The asset’s residual value at the end of its
service life-any amount eventually
recovered through sale, trade in, or
salvage.
25. 25
25
Judgments Required
It is this net cost that should be charged as
an expense over the asset’s life, not is
original cost.
In a great many situations, however, the
estimated residual value is so small or
uncertain that it is disregarded.
26. 26
26
Judgments Required
3. The method of depreciation- the method
that will be used to allocate a fraction of
the asset’s net cost to each of the
accounting periods in which it is expected
to be used.
Straight line depreciation
Exp> EBT< Tax <
27. 27
27
Judgments Required
Accountants, not being clairvoyant, can not
know in advance how long the asset will be
used or what its residual value will be.
Often they have no scientific or strictly
logical way of deciding the best
depreciation method.
28. 28
28
Judgments Required
The amount of depreciation expense
that results from these judgments is
therefore an estimate-yet another
estimate that effects the amount of
each period’s reported income.
Because of the arithmetic precision of
the calculations that take place after
these judgments are made, the inexact
nature of depreciation expense is
sometimes overlooked.
29. 29
29
Service Life
The service life of an asset is the period
of time over which is expect to provide
service (i.e. benefits) to the entity that
controls it.
The service life may be shorter than the
physical life because of obsolescence or
because the entity may plan to dispose
of an asset before its physical life ends.
30. 30
30
Depreciation Methods
Consider a piece of equipment
purchased for $1,000 with an estimated
service life of 10 years and estimated
residual value of zero.
The objective of depreciation accounting
is to charge this net cost of $1,000 as an
expense over the 10 years period.
32. 32
32
Depreciation Methods
Straight-line Method. One concept views a
fixed asset as providing its services in a
level stream.
That is, the service provided (benefit
received) is equal in each year of the
asset’s life, just a three-years insurance
policy provides equal insurance protection
in each of its three years.
33. 33
33
Depreciation Methods
This concept leads to the straight-line
method, which charges as an expense
an equal fraction of the net cost of the
asset each year.
34. 34
34
Depreciation Method
For a piece of equipment whose
net cost is $1,000 with an
estimated service life of 10 years,
1/10 of $ 1,000 (=$100) is the
depreciation expense of the first
year, another 1/10 is the
depreciation expense of the second
year, and so on.
35. 35
35
Depreciation Methods
Expressed another way, the
equipment is said to have a
depreciation rate of 10 percent per
year, the rate being the reciprocal of
the estimated service life.
36. 36
36
Depreciation Methods
Accelerated Methods. A second
concept recognizes that the stream of
benefits provided by a fixed asset may
not be level.
Rather, the benefits provided may be
greatest in the first year of the asset’s
service life and least in the last year.
37. 37
37
Depreciation Methods
This pattern may occur because the asset’s
mechanical efficiency tends to decline with
age, because maintenance costs tend to
increase with age, or because of the
increasing likelihood that better equipment
will become available and make it obsolete.
Often, when a facility is mot working at
capacity, it is the older equipment that is
not used.
38. 38
38
Depreciation Methods
It is argued, therefore, that when an asset
was purchased, the probability that the
earlier periods would benefit more than the
later periods was taken into account and
that the depreciation method should reflect
this.
39. 39
39
Depreciation Methods
Such a line a of reasoning leads to
an accelerated method that charges
a larger fraction of the costs an
expense of the early years than of
the later years.
40. 40
40
Depreciation Methods
Two methods, the double-declining-balance
method and sum-of-the years’ digits (or
simply years’ digit) method are described
below.
The effect of either of these methods is to
write off approximately two-thirds or the
asset’s cost in the first half of its estimated
life, as contrasted with the straight-line
methods under which, of course, half the cost
is written off in each half of the asset’s
estimated life.
41. 41
41
Depreciation Method
Thus, if an accelerated method is
used, depreciation expense is
greater in the early years and less
in the later years as compared with
the straight-line method.
42. 42
42
Depreciation Methods
In a declining-balance method each year’s
depreciation is found by applying a rate to
the net book value of the asset as of the
beginning of that year.
(In straight-line method the depreciation
rate is applied to original cost net of
residual value, not to each year’s net book
value).
43. 43
43
Depreciation Methods
The net book value of an asset at a
point in time is the original acquisition
cost less total depreciation
accumulated up to that time.
With a declining-balance method, the
asset’s estimated residual value, if
any, has no effect on the annual
depreciation charges because residual
value is not included in the calculation
of an asset’s net book value.
44. 44
44
Depreciation Methods
The declining-balance rate is
stated percentage of the
straight-line rate.
Thus, for an asset with a useful
life of 10 years (straight-line
rate =10 percent), 200 percent
declining balance would use a
rate of 20 percent (200 percent
* 10 percent).
45. 45
45
Depreciation Methods
Similarly, 150 percent declining balance
would use rate of 15 percent.
The 200 percent declining balance method
is also called the double-declining-
balance method because the
depreciation rate is double the straight-line
rate.
46. 46
46
Depreciation Methods
After several years the annual depreciation
charge with a declining-balance method
will be lower than the annual charge with
the straight-line method.
The usual practice is to change at that time
from declining-balance to straight-line
depreciation for the remainder of the
asset’s life.
47. 47
47
Depreciation Methods
In the year’s-Digits methods, the numbers
1,2,3,…., n are added, where n is the
estimated years of useful life.
This sum can be found by the equation
(using 10 years for the example:
SYD = n (n+1 / 2) = 10 (10+1 / 2) = 55
48. 48
48
Depreciation Methods
The depreciation rate each year is a
fraction in which the denominator is the
sum of these digits and the numerator is,
for the first year, n; for the second year, n
– 1; for the third year, n – 2; and so on.
Thus, for a 10 years asset, the rate 10/55
the first year, 9/10 the second year, 8/10
the third year, and so on.
50. 50
50
Units-of-Production Method
A third concept of depreciation also treats
the assets as consisting of a bundle of
service units; but it does not assume that
these service units will be provided in a
mathematical time-phased pattern, as is
assumed by the straight line an
accelerated methods.
Rather, with this concept a period’s
depreciation is related to the number of
service units provided by the asset during
the period.
51. 51
51
Depreciation Method
For a piece of equipment whose
net cost is $1,000 with an
estimated service life of 10 years,
1/10 of $ 1,000 (=$100) is the
depreciation expense of the first
year, another 1/10 is the
depreciation expense of the second
year, and so on.
52. RATE= n(n+1)/2=55
10 (10+1)/2=55 n=economic life
Dep 1= 10/55 x ($1,000-$0)=$181
Dep 2= 9/55 x ($1,000-$0)= $
Dep 3=8/55 x ($1,000-$0) = $
Etc.
52
53. BLUE BIRD VS. PRESIDENT T
BB=4YRS. PT = 10 YRS
RP 11O M=ACQ. COSTS
ERV = RP 50 M. ERV = RP 10 M
DEP/YR=15M. DEP/YR=RP 10M.
DEPRECIATIONTAX DEDUCTIBLE EXP
NI >
CUSTOMER IMAGE>
OTHER INCOME 70M – 50M=20M
53
55. 55
55
0
200
180
160
140
120
100
80
60
40
20
1 2 3 4 5 6 7 8 9 10
Years’-Digits
Straight-line
Double-Declining-Balance
Annual
Depreciation
(
Dollars)
ANNUAL DEPRECIATION CHARGES
For equipment with Net Cost of $ 1,000 and 10 – Year Service life
56. After the controller of Stern Corporation had
ascertained the changes in accounts receivable
and the allowance for doubtful accounts in 2010,
a similar analysis was made of property, plant,
and equipment and accumulated depreciation
accounts. Again the controller examined the
December 31, 2009, balance sheet [see Exhibit 1
of Stern Corporation (A), Case 5–1]. Also
reviewed were the following company
transactions that were found to be applicable to
these accounts:
56
Case 7-1 Stern Corp (B)
57. EXHIBIT 1.
Assets
Current assets:
Cash and temporary investments $ 98.1
Accounts receivable (less allowances) 536.8
Inventories 403.1
Prepaid expenses 207.1
Total current assets 1,245.1
All other assets 2,992.0
Total Assets $4,237.1
57
Balance Sheet
As of December 31, 2010 (millions)
58. EXHIBIT 1.
Liabilities and Shareholders’ Equity
Current liabilities $1,214.6
All other liabilities and
stockholders’ equity 3,022.5
Total liabilities and
stockholders’ equity $4,237.1
58
Balance Sheet
As of December 31, 2010 (millions)
59. • On January 2, 2010, one of the factory machines
was sold for its book value, $3,866. This machine
was recorded on the books at $31,233 with
accumulated depreciation of $27,367.
• Tools were carried on the books at cost, and at the
end of each year a physical inventory was taken to
determine what tools still remained. The account
was written down to the extent of the decrease in
tools as ascertained by the year-end inventory. At
the end of 2010, it was determined that there had
been a decrease in the tool inventory amounting to
$7,850.
59
Case 7-1 Stern Corp (B)
60. • On March 1, 2010, the company sold for $2,336
cash an automobile that was recorded on the
books at a cost of $8,354 and had an accumulated
depreciation of $5,180, giving a net book value of
$3,174 as of January 1, 2010. In this and other
cases of the sale of long-lived assets during the
year, the accumulated depreciation and
depreciation expense items were both increased by
an amount that reflected the depreciation
chargeable for the months in 2010 in which the
asset was held prior to the sale at rates listed in
item 7 below.
60
Case 7-1 Stern Corp (B)
61. • The patent listed on the balance sheet had been
purchased by the Stern Corporation. The cost of
the patent was written off as an expense over the
remainder of its legal life as of December 31,
2009, the patent’s remaining legal life was five
years.
• On July 1, 2010, a typewriter that had cost $1,027
and had been fully depreciated on December 31,
2009, was sold for $75.
61
Case 7-1 Stern Corp (B)
62. • On October 1, 2010, the company sold a desk for
$80. This piece of furniture was recorded on the
books at a cost of $490 with an accumulated
depreciation of $395 as of January 1, 2010.
• Depreciation was calculated at the following rates:
62
Case 7-1 Stern Corp (B)
Buildings 2%
Factory machinery 10*
Furniture and fixtures 10
Automotive equipment 20
Office machines 10
1.* Included in the factory machinery cost of $3,425,585 was a
machine costing $85,000 that had been fully depreciated on
December 31, 2009, and that was still in use.
63. 1. In a manner similar to that used in Stern
Corporation (A), analyze the effect of each of
these transactions on the property, plant, and
equipment accounts, accumulated depreciation,
and any other accounts that may be involved.
Prepare journal entries for these transactions.
2. Give the correct totals for property, plant, and
equipment, and the amount of accumulated
depreciation as of December 31, 2010, after the
transactions affecting them had been recorded.
63
Case 7-1 Stern Corp (B)
Questions
64. Case 7-1 Stern Corp (B)
BOOK VALUE = ACQUISITION COSTS –
ACCUMULATED DEPRECIATION AT THE
DATE
64
69. 69
69
CHAPTER 7-CASE 7-1 page 196 STERN CO(B)
1. JANUARY 2010
---------------------------l----------------------
CASH $ 3,866 mkt price
ACC DEP OF F Mach$ 27,367
FACTORY MACHINE $31,233
(TO RECORD THE SALE OF FM). MP=BV
2. 31-12-2010
TOOLS USED $7,850
TOOLS $ 7,850
(............................)
70. 70
70
3. AUTOMOTIVE EQUIPMENT
MARCH 1, 2010
DEPRECIATION OF A E $278.50
ACC, DEP OF A E $278.50
(............) NOTE:2/12 X(8,354X20%)=$278.50
MARKET PRICE $ 2,336
BV=8354-(278.50+5180)=8354-5458.50=2895.5
LOSS ON SALE $559.50
71. 71
71
3. A E
MARCH 1, 2010
MARKET PRICE $ 2336
BV=8354-(278.50+5180)=8354-5458.50=2895.5
LOSS ON SALE $559.50
CASH $ 2,336
ACC DEP OF A E $ 5,458.50
LOSSES ON SALE $559.50
A E $8,354
(TO RECORD THE SALE OF A E)
72. 72
72
4. 31-12-2010
AMORTIZATION OF PATENT $ 11,250
PATENT $11,250
(TO RECORD AMORTIZATION OF PATENT)
5. JULY 1, 2010
CASH $ 75
ACC DEP OF O M $ 1,027
OFFICE MACHINE $ 1,027
GAIN ON SALE $ 75
(TO RECORD THE SALE OF OM)
73. 73
73
6. F F
OCT 1, 2010
DEP OF F F $36.75
ACC DEP OF FF $36.75
(TO RECORD DEP OF FF FOR 9 MONTHS)
NOTES:
9/12 X ($490 X 10%)= $36.75
74. 74
74
MARKET PRICE $ 80
BV=490-(395+36.75)=490-431.75=58.25
GAIN ON SALE $21.75
1/10/2010:
CASH $ 80
ACC DEP OF F F $ 431.75
F F $490
GAIN ON SALE $21.75
(TO RECORD THE SALE OF F F)