Depreciation is the process of allocating the cost of long-term tangible and intangible assets over their useful lives. There are three key questions in the depreciation process: (1) what is the depreciable base, (2) what is the asset's useful life, and (3) what cost allocation method is best. Common cost allocation methods include straight-line, units-of-production, and declining balance. Assets are reviewed annually for impairment indicators and impaired if their carrying amount exceeds recoverable amount. An impairment loss is recognized if impairment exists.
1) Using FIFO, COGS is $45,000 with ending inventory of $33,000.
2) Using LIFO, COGS is $48,000 with ending inventory of $30,000.
3) Using weighted average, COGS is $46,500 with ending inventory of $31,500.
This document discusses accounting for asset impairment. It defines impairment as when an asset's carrying amount cannot be recovered through use or sale. The document outlines how companies test for impairment by comparing an asset's carrying amount to its fair value less costs to sell or value in use. It provides an example where an asset's value in use is below its carrying amount, resulting in a $20,000 impairment loss being recorded. The document also contains an illustrated case of impairment being recorded for equipment with a carrying amount of $14,000 but recoverable amount of only $11,000, resulting in a $3,000 impairment loss.
Describe depreciation concepts and methods of depreciation.
Identify other depreciation issues.
Explain the accounting issues related to asset impairment.
Discuss the accounting procedures for depletion of mineral resources.
Apply the accounting for revaluations.
Demonstrate how to report and analyze property, plant, equipment, and mineral resources.
This chapter discusses accounting for long-lived assets such as property, plant, and equipment. It covers depreciation methods which allocate the cost of tangible assets over their estimated useful lives. Specific methods discussed include straight-line, activity, and diminishing-charge methods. The chapter also addresses component depreciation and accounting for partial periods. Asset impairment and depletion of mineral resources are additional topics covered.
The document provides an overview of Chapter 11 from the textbook "Intermediate Accounting IFRS 2nd Edition" by Kieso, Weygandt, and Warfield. The chapter covers depreciation, impairments, and depletion of long-lived assets. It lists 8 learning objectives for the chapter, including explaining depreciation concepts and methods, component depreciation, and accounting for asset impairments. It then presents various illustrations and examples to demonstrate depreciation calculations and accounting entries under different methods.
This document discusses depreciation, impairments, and depletion. It begins by explaining the concept of depreciation and identifying the factors involved in the depreciation process, such as the depreciation base, estimated useful life, and appropriate depreciation method. The document then compares the activity, straight-line, and diminishing-charge methods of depreciation. It also explains the concept of component depreciation and addresses special depreciation issues. Finally, it discusses accounting for asset impairments, depletion of mineral resources, revaluations, and the presentation and analysis of property, plant, equipment, and mineral resources in financial statements.
This document discusses depreciation, which refers to the decrease in value or usefulness of fixed assets over time. Depreciation spreads the cost of a fixed asset over its estimated useful life. It occurs due to factors like wear and tear, decay, obsolescence, and changes in market value. The straight line and written down value methods are described for calculating depreciation charges each year of an asset's life. The straight line method uses a constant depreciation amount each year, while the written down value method applies a fixed percentage to the asset's reducing balance each year.
1) Using FIFO, COGS is $45,000 with ending inventory of $33,000.
2) Using LIFO, COGS is $48,000 with ending inventory of $30,000.
3) Using weighted average, COGS is $46,500 with ending inventory of $31,500.
This document discusses accounting for asset impairment. It defines impairment as when an asset's carrying amount cannot be recovered through use or sale. The document outlines how companies test for impairment by comparing an asset's carrying amount to its fair value less costs to sell or value in use. It provides an example where an asset's value in use is below its carrying amount, resulting in a $20,000 impairment loss being recorded. The document also contains an illustrated case of impairment being recorded for equipment with a carrying amount of $14,000 but recoverable amount of only $11,000, resulting in a $3,000 impairment loss.
Describe depreciation concepts and methods of depreciation.
Identify other depreciation issues.
Explain the accounting issues related to asset impairment.
Discuss the accounting procedures for depletion of mineral resources.
Apply the accounting for revaluations.
Demonstrate how to report and analyze property, plant, equipment, and mineral resources.
This chapter discusses accounting for long-lived assets such as property, plant, and equipment. It covers depreciation methods which allocate the cost of tangible assets over their estimated useful lives. Specific methods discussed include straight-line, activity, and diminishing-charge methods. The chapter also addresses component depreciation and accounting for partial periods. Asset impairment and depletion of mineral resources are additional topics covered.
The document provides an overview of Chapter 11 from the textbook "Intermediate Accounting IFRS 2nd Edition" by Kieso, Weygandt, and Warfield. The chapter covers depreciation, impairments, and depletion of long-lived assets. It lists 8 learning objectives for the chapter, including explaining depreciation concepts and methods, component depreciation, and accounting for asset impairments. It then presents various illustrations and examples to demonstrate depreciation calculations and accounting entries under different methods.
This document discusses depreciation, impairments, and depletion. It begins by explaining the concept of depreciation and identifying the factors involved in the depreciation process, such as the depreciation base, estimated useful life, and appropriate depreciation method. The document then compares the activity, straight-line, and diminishing-charge methods of depreciation. It also explains the concept of component depreciation and addresses special depreciation issues. Finally, it discusses accounting for asset impairments, depletion of mineral resources, revaluations, and the presentation and analysis of property, plant, equipment, and mineral resources in financial statements.
This document discusses depreciation, which refers to the decrease in value or usefulness of fixed assets over time. Depreciation spreads the cost of a fixed asset over its estimated useful life. It occurs due to factors like wear and tear, decay, obsolescence, and changes in market value. The straight line and written down value methods are described for calculating depreciation charges each year of an asset's life. The straight line method uses a constant depreciation amount each year, while the written down value method applies a fixed percentage to the asset's reducing balance each year.
The document discusses accounting for plant assets, natural resources, and intangible assets. It describes how to apply the cost principle to plant assets, explains the concept of depreciation and how to compute it using different methods, and how to account for disposals and revaluations of plant assets. It also covers accounting for natural resource depletion and issues related to intangible assets.
This document summarizes key concepts related to accounting for long-lived assets. It explains that plant assets should be recorded at cost and depreciated over their useful lives using methods like straight-line or declining-balance. Depreciation is allocated to expense the asset's cost over its useful life. When assets are disposed, any difference between book value and proceeds is recorded as a gain or loss. Ratios can evaluate asset usage. Intangible assets with limited lives are amortized, while those with indefinite lives are not.
- The document discusses depreciation and its treatment for accounting (book depreciation) and tax purposes (tax depreciation).
- It defines depreciation as the reduction in value of an asset due to usage, age, and obsolescence. For accounting, depreciation is allocated systematically over the useful life of the asset, while for tax purposes, depreciation methods allow for faster write-offs.
- Common depreciation methods discussed include straight-line, declining balance, and units-of-production, as well as the Modified Accelerated Cost Recovery System (MACRS) used for tax depreciation since 1986.
This document provides an overview of Chapter 10 from the textbook "Financial Accounting: A Decision-Making Approach" by King, Lembke, and Smith. The chapter discusses long-lived nonfinancial assets, also known as operating assets, and intangible assets. It covers topics such as determining asset costs, allocating costs over time using depreciation and depletion methods, accounting for asset disposals and impairments, accounting for intangible assets, and factors to consider when financing asset acquisitions. The chapter aims to explain how accounting for these assets facilitates decision making.
The document discusses different aspects of depreciation. It defines depreciation as a decrease in the value of fixed assets due to use, age, or obsolescence. Some key causes of depreciation include wear and tear, passage of time, and technological changes. The document also outlines objectives of providing depreciation and defines estimated useful life and residual value of assets. Finally, it explains different depreciation methods like straight-line, declining balance, and units of output methods and provides examples to illustrate their calculation.
Depreciation is a non-cash expense that is calculated to allocate the cost of a tangible asset over its useful life. It recognizes that the value of assets decreases over time through wear and tear or obsolescence. There are several methods to calculate depreciation including straight-line, declining balance, and sum-of-years digits. Straight-line depreciation divides the asset cost minus salvage value evenly over its useful life. Declining balance depreciates at a higher percentage in early years. Sum-of-years digits allocates more depreciation in early years based on the sum of remaining useful life years.
1) The document discusses key concepts for capital investment decisions including determining relevant cash flows, computing depreciation, and methods for calculating operating cash flow.
2) It emphasizes that only incremental cash flows from accepting a project should be included in the analysis. Common types of cash flows are discussed.
3) Pro forma financial statements and tables are presented to illustrate how to project cash flows, capital requirements, and total cash flows for making the investment decision.
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.
The document discusses depreciation accounting concepts including:
1) Depreciation is the allocation of the cost of a tangible asset over its useful life. It measures the loss of value from wear, tear, obsolescence, and age.
2) Depreciable assets have a limited useful life and are used in business operations for more than one accounting period. Depreciation is calculated based on historical cost, useful life, and expected residual value.
3) Common depreciation methods include straight-line and reducing balance, which have different impacts on financial statements over the asset's life. Accounting standards provide guidance but don't specify depreciation rates.
This document provides an overview of accounting for plant assets, natural resources, and intangible assets. It covers determining the cost of plant assets, depreciation methods including straight-line, units-of-activity, and declining balance, revising depreciation estimates, distinguishing between capital and expense expenditures, accounting for disposals of plant assets, depletion of natural resources, and issues related to intangible assets. The objectives are presented in 9 points covering these major topics.
This document discusses accounting for long-lived assets such as plant, property, and equipment. It covers topics such as:
- Plant assets are recorded at historical cost and depreciated over their useful lives, except for land which is not depreciated.
- Depreciation methods include straight-line, declining balance, and units-of-activity, and allocate the cost of an asset over its useful life.
- Periodic depreciation expense can be revised due to changes in estimated useful life or salvage value, which are changes in accounting estimates affecting the current period and future periods.
- Long-lived assets are presented on the balance sheet net of accumulated depreciation. Notes to the financial statements
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.
This document discusses various techniques for estimating cash flows and analyzing risk for capital budgeting projects. It provides examples of estimating costs, revenues, depreciation, taxes, and cash flows for a sample project over multiple years. It also defines and compares sensitivity analysis, scenario analysis, and simulation analysis for examining risk and uncertainty in project cash flows and outcomes.
The document discusses plant assets and depreciation. It defines plant assets as tangible resources used in a business's operations rather than for sale to customers. Plant assets are divided into four classes: land, land improvements, buildings, and equipment. Depreciation is the allocation of the cost of a plant asset over its useful life. There are four generally accepted depreciation methods: straight-line, units-of-production, double-declining balance, and sum-of-the-years'-digits. The straight-line method evenly allocates depreciation over the asset's useful life.
AssignmentComplete the following problems You must show your.docxssuser562afc1
Assignment:
Complete the following problems: You must show your work and complete both problems to get any credit!
1) (Chapter 10) Identify which of the following costs are fixed and which are variable:
a) Electricity for machinery in a plant
b) Sales commission
c) Property taxes on a factory building
d) Property taxes on an administrative building
e) Factory fire insurance
f) Regular maintenance on machinery and equipment
g) Wages paid to temporary or seasonal workers
h) Salaries paid to design engineers
i) Heat and air conditioning in a plant
j) Basic raw materials used in production
2) (Chapter 11) A machine costing $80,000 to buy and $6,000 per year to operate will save mainly labor expenses in packaging over five years. The anticipated salvage value of the machine at the end of five years is $4,000.
a) If a 12% return of investment (rate of return) is desired, what is the minimum required annual savings in labor from this machine?
b) If the service life is four years instead of five, what is the minimum required annual savings in labor for the firm to realize a 12% return on investment?
c) If the annual operating cost increases 10%, say from $6,000 to $6,600, what will happen to the answer in (a)?
Formatting:
Text Size: All of the text in this assignment needs to be set in 10 or 12-point size. Please resist the temptation to mix and match point sizes. If you doubt your applications intentions, just select all of your text and insure that it is in 10 or 12-point size.
Margins: The right and left side can be set for ½” (0.5) margins. Set the top and bottom margins to one (1”). The only text that ends up on the outside of the one-inch margin is the page number.
Name Block: Place the name block in the upper left corner of the page. In MS Excel, use the left side cells. In this class the name block only needs to be on the first page. Put your name first, then the class title and then the date. Example:
Park 9
Accounting for Depreciation
Depreciation
Depreciation is the loss of value of fixed assets over time.
Depreciation accounting is to account for the cost of fixed assets in a pattern that matches their decline in value over time.
The process of depreciating an asset requires that we know some things:
What is the cost of the asset?
What is the depreciable life of the asset?
What is the asset’s value at the end of its useful life?
What method of depreciation do we choose?
Depreciable Property
A depreciable asset is property for which a firm may take depreciation deductions against income.
U.S tax law requires the depreciable property must:
Be used in business or held for the production of income
Have a definite service life, which must be longer than 1 year
Be something that wears out, decays, gets used up, becomes obsolete, or loses value from natural causes
Depreciable Property
Depreciable property includes buildings, machinery, equipment, vehicles, a ...
Dr. Alyce Su Cover Story - China's Investment Leadermsthrill
In World Expo 2010 Shanghai – the most visited Expo in the World History
https://www.britannica.com/event/Expo-Shanghai-2010
China’s official organizer of the Expo, CCPIT (China Council for the Promotion of International Trade https://en.ccpit.org/) has chosen Dr. Alyce Su as the Cover Person with Cover Story, in the Expo’s official magazine distributed throughout the Expo, showcasing China’s New Generation of Leaders to the World.
In a tight labour market, job-seekers gain bargaining power and leverage it into greater job quality—at least, that’s the conventional wisdom.
Michael, LMIC Economist, presented findings that reveal a weakened relationship between labour market tightness and job quality indicators following the pandemic. Labour market tightness coincided with growth in real wages for only a portion of workers: those in low-wage jobs requiring little education. Several factors—including labour market composition, worker and employer behaviour, and labour market practices—have contributed to the absence of worker benefits. These will be investigated further in future work.
The document discusses accounting for plant assets, natural resources, and intangible assets. It describes how to apply the cost principle to plant assets, explains the concept of depreciation and how to compute it using different methods, and how to account for disposals and revaluations of plant assets. It also covers accounting for natural resource depletion and issues related to intangible assets.
This document summarizes key concepts related to accounting for long-lived assets. It explains that plant assets should be recorded at cost and depreciated over their useful lives using methods like straight-line or declining-balance. Depreciation is allocated to expense the asset's cost over its useful life. When assets are disposed, any difference between book value and proceeds is recorded as a gain or loss. Ratios can evaluate asset usage. Intangible assets with limited lives are amortized, while those with indefinite lives are not.
- The document discusses depreciation and its treatment for accounting (book depreciation) and tax purposes (tax depreciation).
- It defines depreciation as the reduction in value of an asset due to usage, age, and obsolescence. For accounting, depreciation is allocated systematically over the useful life of the asset, while for tax purposes, depreciation methods allow for faster write-offs.
- Common depreciation methods discussed include straight-line, declining balance, and units-of-production, as well as the Modified Accelerated Cost Recovery System (MACRS) used for tax depreciation since 1986.
This document provides an overview of Chapter 10 from the textbook "Financial Accounting: A Decision-Making Approach" by King, Lembke, and Smith. The chapter discusses long-lived nonfinancial assets, also known as operating assets, and intangible assets. It covers topics such as determining asset costs, allocating costs over time using depreciation and depletion methods, accounting for asset disposals and impairments, accounting for intangible assets, and factors to consider when financing asset acquisitions. The chapter aims to explain how accounting for these assets facilitates decision making.
The document discusses different aspects of depreciation. It defines depreciation as a decrease in the value of fixed assets due to use, age, or obsolescence. Some key causes of depreciation include wear and tear, passage of time, and technological changes. The document also outlines objectives of providing depreciation and defines estimated useful life and residual value of assets. Finally, it explains different depreciation methods like straight-line, declining balance, and units of output methods and provides examples to illustrate their calculation.
Depreciation is a non-cash expense that is calculated to allocate the cost of a tangible asset over its useful life. It recognizes that the value of assets decreases over time through wear and tear or obsolescence. There are several methods to calculate depreciation including straight-line, declining balance, and sum-of-years digits. Straight-line depreciation divides the asset cost minus salvage value evenly over its useful life. Declining balance depreciates at a higher percentage in early years. Sum-of-years digits allocates more depreciation in early years based on the sum of remaining useful life years.
1) The document discusses key concepts for capital investment decisions including determining relevant cash flows, computing depreciation, and methods for calculating operating cash flow.
2) It emphasizes that only incremental cash flows from accepting a project should be included in the analysis. Common types of cash flows are discussed.
3) Pro forma financial statements and tables are presented to illustrate how to project cash flows, capital requirements, and total cash flows for making the investment decision.
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.
The document discusses depreciation accounting concepts including:
1) Depreciation is the allocation of the cost of a tangible asset over its useful life. It measures the loss of value from wear, tear, obsolescence, and age.
2) Depreciable assets have a limited useful life and are used in business operations for more than one accounting period. Depreciation is calculated based on historical cost, useful life, and expected residual value.
3) Common depreciation methods include straight-line and reducing balance, which have different impacts on financial statements over the asset's life. Accounting standards provide guidance but don't specify depreciation rates.
This document provides an overview of accounting for plant assets, natural resources, and intangible assets. It covers determining the cost of plant assets, depreciation methods including straight-line, units-of-activity, and declining balance, revising depreciation estimates, distinguishing between capital and expense expenditures, accounting for disposals of plant assets, depletion of natural resources, and issues related to intangible assets. The objectives are presented in 9 points covering these major topics.
This document discusses accounting for long-lived assets such as plant, property, and equipment. It covers topics such as:
- Plant assets are recorded at historical cost and depreciated over their useful lives, except for land which is not depreciated.
- Depreciation methods include straight-line, declining balance, and units-of-activity, and allocate the cost of an asset over its useful life.
- Periodic depreciation expense can be revised due to changes in estimated useful life or salvage value, which are changes in accounting estimates affecting the current period and future periods.
- Long-lived assets are presented on the balance sheet net of accumulated depreciation. Notes to the financial statements
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.
This document discusses various techniques for estimating cash flows and analyzing risk for capital budgeting projects. It provides examples of estimating costs, revenues, depreciation, taxes, and cash flows for a sample project over multiple years. It also defines and compares sensitivity analysis, scenario analysis, and simulation analysis for examining risk and uncertainty in project cash flows and outcomes.
The document discusses plant assets and depreciation. It defines plant assets as tangible resources used in a business's operations rather than for sale to customers. Plant assets are divided into four classes: land, land improvements, buildings, and equipment. Depreciation is the allocation of the cost of a plant asset over its useful life. There are four generally accepted depreciation methods: straight-line, units-of-production, double-declining balance, and sum-of-the-years'-digits. The straight-line method evenly allocates depreciation over the asset's useful life.
AssignmentComplete the following problems You must show your.docxssuser562afc1
Assignment:
Complete the following problems: You must show your work and complete both problems to get any credit!
1) (Chapter 10) Identify which of the following costs are fixed and which are variable:
a) Electricity for machinery in a plant
b) Sales commission
c) Property taxes on a factory building
d) Property taxes on an administrative building
e) Factory fire insurance
f) Regular maintenance on machinery and equipment
g) Wages paid to temporary or seasonal workers
h) Salaries paid to design engineers
i) Heat and air conditioning in a plant
j) Basic raw materials used in production
2) (Chapter 11) A machine costing $80,000 to buy and $6,000 per year to operate will save mainly labor expenses in packaging over five years. The anticipated salvage value of the machine at the end of five years is $4,000.
a) If a 12% return of investment (rate of return) is desired, what is the minimum required annual savings in labor from this machine?
b) If the service life is four years instead of five, what is the minimum required annual savings in labor for the firm to realize a 12% return on investment?
c) If the annual operating cost increases 10%, say from $6,000 to $6,600, what will happen to the answer in (a)?
Formatting:
Text Size: All of the text in this assignment needs to be set in 10 or 12-point size. Please resist the temptation to mix and match point sizes. If you doubt your applications intentions, just select all of your text and insure that it is in 10 or 12-point size.
Margins: The right and left side can be set for ½” (0.5) margins. Set the top and bottom margins to one (1”). The only text that ends up on the outside of the one-inch margin is the page number.
Name Block: Place the name block in the upper left corner of the page. In MS Excel, use the left side cells. In this class the name block only needs to be on the first page. Put your name first, then the class title and then the date. Example:
Park 9
Accounting for Depreciation
Depreciation
Depreciation is the loss of value of fixed assets over time.
Depreciation accounting is to account for the cost of fixed assets in a pattern that matches their decline in value over time.
The process of depreciating an asset requires that we know some things:
What is the cost of the asset?
What is the depreciable life of the asset?
What is the asset’s value at the end of its useful life?
What method of depreciation do we choose?
Depreciable Property
A depreciable asset is property for which a firm may take depreciation deductions against income.
U.S tax law requires the depreciable property must:
Be used in business or held for the production of income
Have a definite service life, which must be longer than 1 year
Be something that wears out, decays, gets used up, becomes obsolete, or loses value from natural causes
Depreciable Property
Depreciable property includes buildings, machinery, equipment, vehicles, a ...
Dr. Alyce Su Cover Story - China's Investment Leadermsthrill
In World Expo 2010 Shanghai – the most visited Expo in the World History
https://www.britannica.com/event/Expo-Shanghai-2010
China’s official organizer of the Expo, CCPIT (China Council for the Promotion of International Trade https://en.ccpit.org/) has chosen Dr. Alyce Su as the Cover Person with Cover Story, in the Expo’s official magazine distributed throughout the Expo, showcasing China’s New Generation of Leaders to the World.
In a tight labour market, job-seekers gain bargaining power and leverage it into greater job quality—at least, that’s the conventional wisdom.
Michael, LMIC Economist, presented findings that reveal a weakened relationship between labour market tightness and job quality indicators following the pandemic. Labour market tightness coincided with growth in real wages for only a portion of workers: those in low-wage jobs requiring little education. Several factors—including labour market composition, worker and employer behaviour, and labour market practices—have contributed to the absence of worker benefits. These will be investigated further in future work.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
KYC Compliance: A Cornerstone of Global Crypto Regulatory FrameworksAny kyc Account
This presentation explores the pivotal role of KYC compliance in shaping and enforcing global regulations within the dynamic landscape of cryptocurrencies. Dive into the intricate connection between KYC practices and the evolving legal frameworks governing the crypto industry.
13 Jun 24 ILC Retirement Income Summit - slides.pptxILC- UK
ILC's Retirement Income Summit was hosted by M&G and supported by Canada Life. The event brought together key policymakers, influencers and experts to help identify policy priorities for the next Government and ensure more of us have access to a decent income in retirement.
Contributors included:
Jo Blanden, Professor in Economics, University of Surrey
Clive Bolton, CEO, Life Insurance M&G Plc
Jim Boyd, CEO, Equity Release Council
Molly Broome, Economist, Resolution Foundation
Nida Broughton, Co-Director of Economic Policy, Behavioural Insights Team
Jonathan Cribb, Associate Director and Head of Retirement, Savings, and Ageing, Institute for Fiscal Studies
Joanna Elson CBE, Chief Executive Officer, Independent Age
Tom Evans, Managing Director of Retirement, Canada Life
Steve Groves, Chair, Key Retirement Group
Tish Hanifan, Founder and Joint Chair of the Society of Later life Advisers
Sue Lewis, ILC Trustee
Siobhan Lough, Senior Consultant, Hymans Robertson
Mick McAteer, Co-Director, The Financial Inclusion Centre
Stuart McDonald MBE, Head of Longevity and Democratic Insights, LCP
Anusha Mittal, Managing Director, Individual Life and Pensions, M&G Life
Shelley Morris, Senior Project Manager, Living Pension, Living Wage Foundation
Sarah O'Grady, Journalist
Will Sherlock, Head of External Relations, M&G Plc
Daniela Silcock, Head of Policy Research, Pensions Policy Institute
David Sinclair, Chief Executive, ILC
Jordi Skilbeck, Senior Policy Advisor, Pensions and Lifetime Savings Association
Rt Hon Sir Stephen Timms, former Chair, Work & Pensions Committee
Nigel Waterson, ILC Trustee
Jackie Wells, Strategy and Policy Consultant, ILC Strategic Advisory Board
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck mari...Donc Test
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck maria r mitchell.docx
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck maria r mitchell.docx
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck maria r mitchell.docx
An accounting information system (AIS) refers to tools and systems designed for the collection and display of accounting information so accountants and executives can make informed decisions.
Economic Risk Factor Update: June 2024 [SlideShare]Commonwealth
May’s reports showed signs of continued economic growth, said Sam Millette, director, fixed income, in his latest Economic Risk Factor Update.
For more market updates, subscribe to The Independent Market Observer at https://blog.commonwealth.com/independent-market-observer.
The Rise and Fall of Ponzi Schemes in America.pptxDiana Rose
Ponzi schemes, a notorious form of financial fraud, have plagued America’s investment landscape for decades. Named after Charles Ponzi, who orchestrated one of the most infamous schemes in the early 20th century, these fraudulent operations promise high returns with little or no risk, only to collapse and leave investors with significant losses. This article explores the nature of Ponzi schemes, notable cases in American history, their impact on victims, and measures to prevent falling prey to such scams.
Understanding Ponzi Schemes
A Ponzi scheme is an investment scam where returns are paid to earlier investors using the capital from newer investors, rather than from legitimate profit earned. The scheme relies on a constant influx of new investments to continue paying the promised returns. Eventually, when the flow of new money slows down or stops, the scheme collapses, leaving the majority of investors with substantial financial losses.
Historical Context: Charles Ponzi and His Legacy
Charles Ponzi is the namesake of this deceptive practice. In the 1920s, Ponzi promised investors in Boston a 50% return within 45 days or 100% return in 90 days through arbitrage of international reply coupons. Initially, he paid returns as promised, not from profits, but from the investments of new participants. When his scheme unraveled, it resulted in losses exceeding $20 million (equivalent to about $270 million today).
Notable American Ponzi Schemes
1. Bernie Madoff: Perhaps the most notorious Ponzi scheme in recent history, Bernie Madoff’s fraud involved $65 billion. Madoff, a well-respected figure in the financial industry, promised steady, high returns through a secretive investment strategy. His scheme lasted for decades before collapsing in 2008, devastating thousands of investors, including individuals, charities, and institutional clients.
2. Allen Stanford: Through his company, Stanford Financial Group, Allen Stanford orchestrated a $7 billion Ponzi scheme, luring investors with fraudulent certificates of deposit issued by his offshore bank. Stanford promised high returns and lavish lifestyle benefits to his investors, which ultimately led to a 110-year prison sentence for the financier in 2012.
3. Tom Petters: In a scheme that lasted more than a decade, Tom Petters ran a $3.65 billion Ponzi scheme, using his company, Petters Group Worldwide. He claimed to buy and sell consumer electronics, but in reality, he used new investments to pay off old debts and fund his extravagant lifestyle. Petters was convicted in 2009 and sentenced to 50 years in prison.
4. Eric Dalius and Saivian: Eric Dalius, a prominent figure behind Saivian, a cashback program promising high returns, is under scrutiny for allegedly orchestrating a Ponzi scheme. Saivian enticed investors with promises of up to 20% cash back on everyday purchases. However, investigations suggest that the returns were paid using new investments rather than legitimate profits. The collapse of Saivian l
2. 11-2
C H A P T E R 11
DEPRECIATION, IMPAIRMENTS, AND
DEPLETION
Intermediate Accounting
IFRS Edition
Kieso, Weygandt, and Warfield
3. 11-3
Allocating costs of long-term assets:
Long-lived assets = Depreciation expense
Intangibles = Amortization expense
Mineral resources = Depletion expense
Depreciation is the accounting process of allocating
the cost of tangible assets to expense in a
systematic and rational manner to those periods
expected to benefit from the use of the asset.
Depreciation - Method of Cost Allocation
4. 11-4
Depreciation - Method of Cost Allocation
Three basic questions:
Factors Involved in the Depreciation Process
(1) What depreciable base is to be used?
(2) What is the asset’s useful life?
(3) What method of cost apportionment is best?
5. 11-5
Depreciation - Method of Cost Allocation
Depreciable Base
Factors Involved in the Depreciation Process
Illustration 11-1
6. 11-6
Depreciation - Method of Cost Allocation
Estimation of Service Lifes
Factors Involved in the Depreciation Process
Service life often differs from physical life.
Companies retire assets for two reasons:
1. Physical factors (casualty or expiration
of physical life)
2. Economic factors (inadequacy,
supersession, and obsolescence).
7. 11-7
Depreciation - Method of Cost Allocation
The profession requires the method employed be
“systematic and rational.” Examples include:
Methods of Depreciation
(1) Activity method (units of use or production).
(2) Straight-line method.
(3) Diminishing (accelerated)-charge methods:
a) Sum-of-the-years’-digits.
b) Declining-balance method.
8. 11-8
Depreciation - Method of Cost Allocation
LO 3
Activity Method
Illustration 11-2
Illustration: If Stanley uses the crane for 4,000 hours the first
year, the depreciation charge is:
Stanley Coal
Mines Facts
Illustration 11-3
9. 11-9
Depreciation - Method of Cost Allocation
Straight-Line Method
Illustration: Stanley computes depreciation as follows:
Stanley Coal
Mines Facts
Illustration 11-4
Illustration 11-2
LO 3
10. 11-10
Depreciation - Method of Cost Allocation
Diminishing-Charge Methods
Stanley Coal
Mines Facts
Sum-of-the-Years’-Digits. Each fraction uses the sum of the
years as a denominator (5 + 4 + 3 + 2 + 1 = 15). The
numerator is the number of years of estimated life remaining
as of the beginning of the year.
Illustration 11-2
n(n+1)
2
=
5(5+1)
2
= 15
LO 3
Alternate sum-of-the-
years’ calculation
12. 11-12
Depreciation - Method of Cost Allocation
Stanley Coal
Mines Facts
Declining-Balance Method.
► Utilizes a depreciation rate (%) that is some multiple of
the straight-line method.
► Does not deduct the residual value in computing the
depreciation base.
Diminishing-Charge Methods
Illustration 11-2
LO 3
14. 11-14
Depreciation - Method of Cost Allocation
IFRS requires that each part of an item
of property, plant, and equipment that is
significant to the total cost of the asset
must be depreciated separately.
Component Depreciation
15. 11-15
Depreciation - Method of Cost Allocation
LO 4 Explain component depreciation.
Illustration: EuroAsia Airlines purchases an airplane for
€100,000,000 on January 1, 2011. The airplane has a useful life
of 20 years and a residual value of €0. EuroAsia uses the
straight-line method of depreciation for all its airplanes.
EuroAsia identifies the following components, amounts, and
useful lives.
Component Depreciation
Illustration 11-8
16. 11-16
Computation of depreciation expense for EuroAsia for
2011.
Depreciation - Method of Cost Allocation
Illustration 11-9
Depreciation Expense 8,600,000
Accumulated Depreciation—Airplane 8,600,000
Depreciation journal entry for 2011.
17. 11-17
Depreciation - Method of Cost Allocation
Special Depreciation Issues
(1) How should companies compute
depreciation for partial periods?
(2) Does depreciation provide for the
replacement of assets?
(3) How should companies handle revisions in
depreciation rates?
18. 11-18
Depreciation and Replacement of PP&E
Depreciation - Method of Cost Allocation
Depreciation
► Does not involve a current cash outflow.
► Funds for the replacement of the assets
come from the revenues.
19. 11-19
Accounted for in the current and
prospective periods.
Not handled retrospectively
Not considered errors or extraordinary
items
Depreciation - Method of Cost Allocation
Revision of Depreciation Rates
20. 11-20
Arcadia HS, purchased equipment for $510,000 which was estimated
to have a useful life of 10 years with a residual value of $10,000 at
the end of that time. Depreciation has been recorded for 7 years on
a straight-line basis. In 2010 (year 8), it is determined that the total
estimated life should be 15 years with a residual value of $5,000 at
the end of that time.
Questions:
What is the journal entry to correct the prior years’
depreciation?
Calculate the depreciation expense for 2010.
No Entry
Required
Change in Estimate Example
21. 11-21
Equipment $510,000
Accumulated depreciation 350,000
Net book value (NBV) $160,000
Balance Sheet (Dec. 31, 2009)
Change in Estimate Example After 7 years
Equipment cost $510,000
Salvage value - 10,000
Depreciable base 500,000
Useful life (original) 10 years
Annual depreciation $ 50,000 x 7 years = $350,000
First, establish NBV
at date of change in
estimate.
LO 4 Explain component depreciation.
22. 11-22
Change in Estimate Example After 7 years
Net book value $160,000
Salvage value (new) 5,000
Depreciable base 155,000
Useful life remaining 8 years
Annual depreciation $ 19,375
Depreciation
Expense
calculation for
2010.
Depreciation expense 19,375
Accumulated depreciation 19,375
Journal entry for 2010
LO 4 Explain component depreciation.
23. 11-23
Impairments
LO 5 Explain the accounting issues related to asset impairment.
A long-lived tangible asset is impaired when a
company is not able to recover the asset’s
carrying amount either through using it or by
selling it.
Recognizing Impairments
On an annual basis, companies review the
asset for indicators of impairments—that is, a
decline in the asset’s cash-generating ability
through use or sale.
24. 11-24
Impairments
LO 5
If impairment indicators are present, then an impairment
test must be conducted.
Recognizing Impairments
Illustration 11-15
25. 11-25
Impairments
LO 5
Example: Assume that Cruz Company performs an impairment
test for its equipment. The carrying amount of Cruz’s equipment
is $200,000, its fair value less costs to sell is $180,000, and its
value-in-use is $205,000.
Illustration 11-15
$200,000 $205,000
$180,000 $205,000
No
Impairment
26. 11-26
Impairments
LO 5
Example: Assume the same information for Cruz Company
except that the value-in-use of Cruz’s equipment is $175,000
rather than $205,000.
Illustration 11-15
$200,000 $180,000
$180,000 $175,000
$20,000 Impairment Loss
27. 11-27
Impairments
LO 5
Example: Assume the same information for Cruz Company
except that the value-in-use of Cruz’s equipment is $175,000
rather than $205,000.
Illustration 11-15
$200,000 $180,000
Cruz makes the following entry to record the impairment loss.
Loss on Impairment 20,000
Accumulated Depreciation—Equipment 20,000
$20,000 Impairment Loss
28. 11-28
Impairments
LO 5
At December 31, 2011, Hanoi Company has equipment with a cost of
VND26,000,000, and accumulated depreciation of VND12,000,000. The
equipment has a total useful life of four years with a residual value of
VND2,000,000. The following information relates to this equipment.
1. The equipment’s carrying amount at December 31, 2011, is
VND14,000,000 (VND26,000,000 - VND12,000,000).
2. Hanoi uses straight-line depreciation. Depreciation was
VND6,000,000 for 2011 and is recorded.
3. Hanoi has determined that the recoverable amount for this asset at
December 31, 2011, is VND11,000,000.
4. The remaining useful life after December 31, 2011, is two years.
Impairments Illustrations Case 1
29. 11-29
Case 1: Hanoi records the impairment on its equipment at
December 31, 2011, as follows.
Impairments
LO 5
Illustration 11-15
VND14,000,000 VND11,000,000
VND3,000,000 Impairment Loss
Loss on Impairment 3,000,000
Accumulated Depreciation—Equipment 3,000,000
30. 11-30
Impairments
Depreciation Expense 5,500,000
Accumulated Depreciation—Equipment 5,500,000
Equipment VND 26,000,000
Less: Accumulated Depreciation-Equipment 15,000,000
Carrying value (Dec. 31, 2011) VND 11,000,000
Hanoi Company determines that the equipment’s total
useful life has not changed (remaining useful life is still
two years). However, the estimated residual value of the
equipment is now zero. Hanoi continues to use straight-
line depreciation and makes the following journal entry
to record depreciation for 2012.
31. 11-31
Impairments
LO 5
At the end of 2010, Verma Company tests a machine for impairment. The
machine has a carrying amount of $200,000. It has an estimated remaining
useful life of five years. Because there is little market-related information on
which to base a recoverable amount based on fair value, Verma determines
the machine’s recoverable amount should be based on value-in-use. Verma
uses a discount rate of 8 percent. Verma’s analysis indicates that its future
cash flows will be $40,000 each year for five years, and it will receive a
residual value of $10,000 at the end of the five years. It is assumed that all
cash flows occur at the end of the year.
Impairments Illustrations Case 2
Illustration 11-16
32. 11-32
Case 2: Computation of the impairment loss on the machine at
the end of 2010.
Impairments
LO 5
Illustration 11-15
$200,000 $166,514
Unknown $166,514
$33,486 Impairment Loss
33. 11-33
Case 2: Computation of the impairment loss on the machine at
the end of 2010.
Impairments
LO 5
Illustration 11-15
$200,000 $166,514
Unknown $166,514
$33,486 Impairment Loss
Loss on Impairment 33,486
Accumulated Depreciation—Machine 33,486
34. 11-34
Impairments
LO 5
Illustration: Tan Company purchases equipment on January 1, 2010,
for $300,000, useful life of three years, and no residual value.
Reversal of Impairment Loss
At December 31, 2010, Tan records an impairment loss of $20,000.
Loss on Impairment 20,000
Accumulated Depreciation—Equipment 20,000
35. 11-35
Impairments
LO 5
Depreciation expense and related carrying amount after the
impairment.
Reversal of Impairment Loss
At the end of 2011, Tan determines that the recoverable amount
of the equipment is $96,000. Tan reverses the impairment loss.
Accumulated Depreciation—Equipment 6,000
Recovery of Impairment Loss 6,000
36. 11-36
Impairments
When it is not possible to assess a single
asset for impairment because the single asset
generates cash flows only in combination with
other assets, companies identify the smallest
group of assets that can be identified that
generate cash flows independently of the
cash flows from other assets.
Cash-Generating Units
LO 5 Explain the accounting issues related to asset impairment.
37. 11-37
Impairments
Report the impaired asset at the lower-of-cost-or-net
realizable value (fair value less costs to sell).
No depreciation or amortization is taken on assets held for
disposal during the period they are held.
Can write up or down an asset held for disposal in future
periods, as long as the carrying amount after the write up
never exceeds the carrying amount of the asset before the
impairment.
Impairment of Assets to Be Disposed Of
LO 5 Explain the accounting issues related to asset impairment.
39. 11-39
Natural resources can be divided into two categories:
1. Biological assets (timberlands)
► Fair value approach (chapter 9)
2. Mineral resources (oil, gas, and mineral mining).
► Complete removal (consumption) of the asset.
► Replacement of the asset only by an act of nature.
Depletion
LO 6 Explain the accounting procedures for depletion of mineral resources.
Depletion - process of allocating the cost of mineral resources.
40. 11-40
Establishing a Depletion Base
Depletion
LO 6 Explain the accounting procedures for depletion of mineral resources.
Computation of the depletion base
involves:
(1) Pre-exploratory costs.
(2) Exploratory and evaluation costs.
(3) Development costs.
41. 11-41
Write-off of Resource Cost
Depletion
LO 6 Explain the accounting procedures for depletion of mineral resources.
Normally, companies compute depletion on a units-of-
production method (activity approach). Depletion is a
function of the number of units extracted during the period.
Calculation:
Total cost – Residual value
Total estimated units available
= Depletion cost per unit
Units extracted x Cost per unit = Depletion
42. 11-42
Illustration: MaClede Co. acquired the right to use 1,000
acres of land in South Africa to mine for silver. The lease
cost is $50,000, and the related exploration costs on the
property are $100,000. Intangible development costs
incurred in opening the mine are $850,000. MaClede
estimates that the mine will provide approximately 100,000
ounces of silver.
Depletion
LO 6 Explain the accounting procedures for depletion of mineral resources.
Illustration 11-18
43. 11-43
If MaClede extracts 25,000 ounces in the first year, then the
depletion for the year is $250,000 (25,000 ounces x $10).
Depletion
LO 6
Inventory 250,000
Accumulated Depletion 250,000
MaClede’s statement of financial position:
Depletion cost related to inventory sold is part of cost of goods
sold.
44. 11-44
Estimating Recoverable Reserves
Depletion
LO 6 Explain the accounting procedures for depletion of mineral resources.
Same as accounting for changes in
estimates.
Revise the depletion rate on a prospective
basis.
Divides the remaining cost by the new
estimate of the recoverable reserves.
45. 11-45
Liquidating Dividends - Dividends greater than the
amount of accumulated net income.
Depletion
LO 6 Explain the accounting procedures for depletion of mineral resources.
Illustration: Callahan Mining had a retained earnings
balance of £1,650,000, accumulated depletion on mineral
properties of £2,100,000, and share premium of £5,435,493.
Callahan’s board declared a dividend of £3 a share on the
1,000,000 shares outstanding. It records the £3,000,000 cash
dividend as follows.
Retained Earnings 1,650,000
Share Premium—Ordinary 1,350,000
Cash 3,000,000
46. 11-46
Presentation on the Financial Statements
Depletion
LO 6 Explain the accounting procedures for depletion of mineral resources.
Disclosures related to E&E expenditures should include:
1. Accounting policies for exploration and evaluation
expenditures, including the recognition of E&E
assets.
2. Amounts of assets, liabilities, income and expense,
and operating cash flow arising from the
exploration for and evaluation of mineral resources.
47. 11-47
Companies may value long-lived tangible asset after
acquisition at cost or fair value.
Network Rail (GBR) elected to use fair values to account for
its railroad network.
► Increased long-lived tangible assets by £4,289 million.
► Change in the fair value accounted for by adjusting the
asset account and establishing an unrealized gain.
► Unrealized gain is often referred to as revaluation
surplus.
Revaluations
LO 7 Explain the accounting for revaluations.
Recognizing Revaluations
48. 11-48
Revaluation—Land
Revaluations
Illustration: Siemens Group (DEU) purchased land for
€1,000,000 on January 5, 2010. The company elects to use
revaluation accounting for the land in subsequent
periods. At December 31, 2010, the land’s fair value is
€1,200,000. The entry to record the land at fair value is as
follows.
LO 7 Explain the accounting for revaluations.
Land 200,000
Unrealized Gain on Revaluation - Land 200,000
Unrealized Gain on Revaluation—Land increases other comprehensive
income in the statement of comprehensive income.
49. 11-49
Revaluation—Depreciable Assets
Illustration: Lenovo Group (CHN) purchases equipment
for ¥500,000 on January 2, 2010. The equipment has a
useful life of five years, is depreciated using the straight-
line method of depreciation, and its residual value is zero.
Lenovo chooses to revalue its equipment to fair value
over the life of the equipment. Lenovo records
depreciation expense of ¥100,000 (¥500,000 5) at
December 31, 2010, as follows.
LO 7 Explain the accounting for revaluations.
Revaluations
Depreciation Expense 100,000
Accumulated Depreciation—Equipment 100,000
50. 11-50
Revaluation—Depreciable Assets
After this entry, Lenovo’s equipment has a carrying
amount of ¥400,000 (¥500,000 - ¥100,000). Lenovo receives
an independent appraisal for the fair value of equipment at
December 31, 2010, which is ¥460,000.
LO 7 Explain the accounting for revaluations.
Revaluations
Accumulated Depreciation—Equipment 100,000
Equipment 40,000
Unrealized Gain on Revaluation—Equipment 60,000
52. 11-52
Company can select to value only one class of assets, say
buildings, and not revalue other assets such as land or
equipment.
Most companies do not use revaluation accounting.
► Substantial and continuing costs associated with appraisals.
► Gains associated with revaluations above historical cost are
not reported in net income but rather go directly to equity.
► Losses associated with revaluation below historical cost
decrease net income. In addition, the higher depreciation
charges related to the revalued assets also reduce net
income.
Revaluations
Revaluations Issues
53. 11-53
Presentation of Property, Plant, Equipment,
and Mineral Resources
Presentation and Analysis
Basis of valuation (usually cost)
Pledges, liens, and other commitments
Depreciating assets, use Accumulated Depreciation.
Depleting assets may include use of Accumulated Depletion
account, or the direct reduction of asset.
Disclosures
LO 8 Explain how to report and analyze property,
plant, equipment, and mineral resources.
54. 11-54
Measure of a firm’s
ability to generate
sales from a particular
investment in assets.
Presentation and Analysis
Illustration 11-24
LO 8
Analysis of Property, Plant, and Equipment
Asset Turnover Ratio
55. 11-55
Measure of the ability to
generate operating
income from a particular
level of sales.
Presentation and Analysis
Illustration 11-25
LO 8
Analysis of Property, Plant, and Equipment
Profit Margin on Sales
56. 11-56
Measures a firm’s
success in using assets
to generate earnings.
Presentation and Analysis
Illustration 11-26
LO 8
Analysis of Property, Plant, and Equipment
Rate of Return on Assets
57. 11-57
Analyst obtains further insight into the behavior of ROA by
disaggregating it into components of profit margin on sales and
asset turnover as follows:
Net Income
Average Total Assets
Rate of Return
on Assets
=
Net Income
Net Sales
Profit Margin on
Sales
=
Net Sales
Asset Turnover
x
x
Average Total Assets
Presentation and Analysis
LO 8 Explain how to report and analyze property,
plant, equipment, and mineral resources.
58. 11-58
€644
(€9,533 €8,325) / 2
Rate of Return
on Assets
=
€644
€10,799
Profit Margin on
Sales
=
€10,799
Asset Turnover
x
x
Presentation and Analysis
7.2% 5.96%
= x 1.21
(€9,533 €8,325) / 2
Analyst obtains further insight into the behavior of ROA by
disaggregating it into components of profit margin on sales and
asset turnover as follows:
LO 8 Explain how to report and analyze property,
plant, equipment, and mineral resources.
59. 11-59
Under both iGAAP and U.S. GAAP, interest costs incurred during
construction must be capitalized.
The accounting for exchanges of non-monetary assets has recently
converged between IFRS and U.S. GAAP. U.S. GAAP now requires that
gains on exchanges of non-monetary assets be recognized if the
exchange has commercial substance. This is the same framework used
in IFRS.
U.S. GAAP also views depreciation as allocation of cost over an asset’s
life. U.S. GAAP permits the same depreciation methods (straight-line,
diminishing-balance, units-of-production) as IFRS.
60. 11-60
IFRS requires component depreciation. Under U.S. GAAP, component
depreciation is permitted but is rarely used.
Under IFRS, companies can use either the historical cost model or the
revaluation model. U.S. GAAP does not permit revaluations of property,
plant, and equipment or mineral resources.
In testing for impairments of long-lived assets, U.S. GAAP uses a two-
step model to test for impairments. The IFRS impairment test is stricter.
However, unlike U.S. GAAP, reversals of impairment losses are
permitted.
61. 11-61 LO 9 Explain revaluation accounting procedures.
The general rules for revaluation accounting are as follows.
1. When a company revalues its long-lived tangible assets above
historical cost, it reports an unrealized gain that increases other
comprehensive income. Thus, the unrealized gain bypasses net
income, increases other comprehensive income, and increases
accumulated other comprehensive income.
2. If a company experiences a loss on impairment (decrease of
value below historical cost), the loss reduces income and
retained earnings. Thus, gains on revaluation increase equity
but not net income, whereas losses decrease income and
retained earnings (and therefore equity).
62. 11-62 LO 9 Explain revaluation accounting procedures.
3. If a revaluation increase reverses a decrease that was
previously reported as an impairment loss, a company credits
the revaluation increase to income using the account Recovery
of Impairment Loss up to the amount of the prior loss. Any
additional valuation increase above historical cost increases
other comprehensive income and is credited to Unrealized Gain
on Revaluation.
4. If a revaluation decrease reverses an increase that was
reported as an unrealized gain, a company first reduces other
comprehensive income by eliminating the unrealized gain. Any
additional valuation decrease reduces net income and is
reported as a loss on impairment.
63. 11-63
Revaluation of Land
LO 9
Revaluation—2010: Valuation Increase
Illustration: Unilever Group (GBR and NLD) purchased land on
January 1, 2010, that cost €400,000. Unilever decides to report the
land at fair value in subsequent periods. At December 31, 2010, an
appraisal of the land indicates that its fair value is €520,000. Unilever
makes the following entry to record the increase in fair value.
Land 120,000
Unrealized Gain on Revaluation—Land 120,000
Illustration 11A-1
64. 11-64
Revaluation of Land
LO 9
Revaluation—2011: Decrease below Cost
Illustration: What happens if the land’s fair value at December 31,
2011, is €380,000, a decrease of €140,000 (€520,000 - €380,000)?
Unrealized Gain on Revaluation—Land 120,000
Loss on Impairment 20,000
Land 140,000
Illustration 11A-2
65. 11-65
Revaluation of Land
LO 9
Revaluation—2012: Recovery of Loss
Illustration: At December 31, 2012, Unilever’s land value
increases to €415,000, an increase of €35,000 (€415,000 -
€380,000).
Land 35,000
Unrealized Gain on Revaluation—Land 15,000
Recovery of Impairment Loss 20,000
Illustration 11A-3