The document discusses accounting for plant assets, including: 1. Acquiring plant assets through purchase for cash or on account. 2. Calculating and recording annual depreciation expense using the straight-line method based on original cost, salvage value, and estimated useful life. 3. Disposing of plant assets by discarding, selling, or trading, which involves recording any additional depreciation, removing the asset, and updating the plant asset record.

1. Chapter 8
Accounting for Plant Assets

2. Assets we’ve covered so far:
 Cash
 Receivables
 Inventory

3. Plant Assets
 Acquiring
 Using
 Disposing

4. Accounting in the Real World P223
 What effect would
increasing estimated
useful life of an asset
have on net income?
 What information would
you need to help ID the
useful life of a piece of
equipment?

5. Read to Yourself
P: 224 - 227
 Chapter 8 Quizlet
 Build Outline in notes

6. What are Plant Assets?

7. Plant Assets:
 Assets that will be
used for a long
period of time
 (at least over a year).

8. 8 LESSON 8-1
1. Complete when asset is purchased.
2. Complete when asset is disposed of.
3. Complete each year to record annual depreciation expense.
PLANT ASSET RECORD
page 225
1
2
3

9. 9 LESSON 8-1
BUYING A PLANT ASSET
FOR CASH
page 226
January 2. Paid cash for new copying machine, $1,680.00.
Check No. 62.

10. 10 LESSON 8-1
BUYING A PLANT ASSET
ON ACCOUNT
page 226
January 2. Bought an office computer on account from Discount
Computers, $3,300.00. Memorandum No. 70.

11. Property Taxes
 Two types:
 Real Property
 Personal Property

12. Where do Property Taxes come from?
 Tax Assessor:
 A local govt. official
who determines
the value of a
property for local
tax purposes.

13. 13 LESSON 8-1
CALCULATING AND PAYING
PROPERTY TAX
page 227
Feb 1. Paid cash for property tax, $3,250.00. Check No. 122.
Annual
Property
Tax
=
Tax
Rate

Assessed
Value
$65,000.00  5% = $3,250.00

14. APLIA WT / OYO

16. Lesson 8-2
Calculating and Journalizing
Depreciation Expense

17. In Lesson 1:
 We acquired the asset

18. Today …
 We use the asset

19. Are assets from 1980 valuable?
Why Not?

20. Read to Yourself
P: 229 - 232
 Chapter 8 Quizlet
 Continue Outline in
notes

21. The Formula: Straight Line Dep.

22. 22 LESSON 8-2
STRAIGHT-LINE DEPRECIATION
page 230
Original Cost $2,000.00

23. 23 LESSON 8-2
STRAIGHT-LINE DEPRECIATION
page 230
Original Cost $2,000.00
– Estimated Salvage Value – 175.00
= Estimated Total Depreciation Expense $1,825.00

24. Salvage Value
 What we think this asset will be worth when we
are done using it.

25. 25 LESSON 8-2
STRAIGHT-LINE DEPRECIATION
page 230
Original Cost $2,000.00
– Estimated Salvage Value – 175.00
= Estimated Total Depreciation Expense $1,825.00
 Years of Estimated Useful Life  5
= Annual Depreciation Expense $ 365.00

26. The Formula:
Useful Life:
• Automotive equipment: 3-6 years
• Furniture and fixtures: 5-12 years
• Machinery and equipment: 3-20 years
• Buildings and improvements: 10-50 years

27. 27 LESSON 8-2
STRAIGHT-LINE DEPRECIATION
page 230
Ending Book
Value
=Annual
Depreciation
–Beginning Book
Value
Year 3 $1,270.00 – $365.00 = $905.00

28. 28
RECORDING DEPRECIATION
ON PLANT ASSET RECORDS
2. Calculate accumulated depreciation.
3. Calculate ending book value.
1. Calculate annual depreciation expense.
page 231

29. 29
Depreciation Expense—Office Equipment
Jan. 1 Bal. 37,434.00
Dec. 31 Adj. 11,571.00
Dec. 31 Bal. 49,005.00
Accumulated Depreciation—Office Equipment
Dec. 31 Adj. 11,571.00
JOURNALIZING ANNUAL
DEPRECIATION EXPENSE
page 232

30. Example 1:
 We buy a Machine for $25,000. We estimate
that it’s salvage value after 10 years of useful
life will be $0. What is our annual depreciation?
 OC – Salvage / Useful Life = AD
 (25,000-0) / 10
 25,000 / 10
 $2,500

31. Example 2:
 We buy a computer for $2,000. We estimate
that we can sell it for $200 after 3 years of
useful life. What is our annual depreciation?
 OC – Salvage / Useful Life = AD
 (2000-200) / 3
 1800/3
 $600

32. Example 3:
 We buy a car for $53,250. We estimate that we
can sell it for $12,500 after 5 years of useful life.
What is our annual depreciation?
 OC – Salvage / Useful Life = AD
 (53,250-12,500) / 5
 40,750 / 5
 $8,150

33. 33 LESSON 8-2
CALCULATING DEPRECIATION
EXPENSE FOR PART OF A YEAR
page 232
Annual Depreciation Expense $ 120.00
 Months in a Year  12
Monthly Depreciation Expense $ 10.00
× Number of Months Asset Is Used × 5
Partial Year’s Depreciation Expense $ 50.00

34. APLIA WT / OYO

36. Lesson 8-3
Disposing of Plant Assets

37. Why would a business discard an asset?
 Not useful
 No longer needed
 Traded for an upgrade

38. Read to Yourself
P: 235 - 240
 Chapter 8 Quizlet
 Continue Outline in
notes

39. Ways to dispose of Assets
 Discard (throw away)
 Sell
 Trade

40. Follow 3 Steps
ARU
 Additional Depreciation?
 Record the discard
 Update Plant Record

41. Follow 3 Steps
 1: Does additional depreciation need to be recorded?
 If yes, record in general journal. Update plant asset
record.
 If no, skip this step.

42. Follow 3 Steps
 2: Record discard, sell, or trade in appropriate journal.
 Select Journal
 Record Transaction
 If a gain or loss applies, include this in the journal entry above

43. Follow 3 Steps
 3: Update Plant Asset Record, Section 2

44. 44 LESSON 8-3
1. Record entry to
remove plant
asset from
accounts.
2. Write the date,
amount, and type
of disposal.
DISCARDING A PLANT ASSET
WITH NO BOOK VALUE
page 235
1
January 5, 20X6. Discarded storage cabinet: original cost, $275.00; total
accumulated depreciation through December 31, 20X5, $275.00.
Memorandum No. 72.
2

45. 45
June 30, 20X6. Discarded office table: original cost, $200.00; total accumulated
depreciation through December 31, 20X5, $140.00; additional depreciation to be
recorded through June 30, 20X6, $20.00. Memorandum No. 92.
DISCARDING A PLANT
ASSET WITH A BOOK VALUE
page 236
Annual Depreciation = $40 / Year

46. 46
June 30, 20X6. Discarded office table: original cost, $200.00; total accumulated
depreciation through December 31, 20X5, $140.00; additional depreciation to be
recorded through June 30, 20X6, $20.00. Memorandum No. 92.
DISCARDING A PLANT
ASSET WITH A BOOK VALUE
page 236
Annual Depreciation = $40 / Year
Jan 1 – June 30 = 6 Months … or half a year
Additional Depreciation = ???

47. 47
June 30, 20X6. Discarded office table: original cost, $200.00; total accumulated
depreciation through December 31, 20X5, $140.00; additional depreciation to be
recorded through June 30, 20X6, $20.00. Memorandum No. 92.
DISCARDING A PLANT
ASSET WITH A BOOK VALUE
page 236

48. 48
June 30, 20X6. Discarded office table: original cost, $200.00; total accumulated
depreciation through December 31, 20X5, $140.00; additional depreciation to be
recorded through June 30, 20X6, $20.00. Memorandum No. 92.
DISCARDING A PLANT
ASSET WITH A BOOK VALUE
page 236

49. 49
June 30, 20X6. Discarded office table: original cost, $200.00; total accumulated
depreciation through December 31, 20X5, $140.00; additional depreciation to be
recorded through June 30, 20X6, $20.00. Memorandum No. 92.
DISCARDING A PLANT
ASSET WITH A BOOK VALUE
page 236

50. 50
June 30, 20X6. Discarded office table: original cost, $200.00; total accumulated
depreciation through December 31, 20X5, $140.00; additional depreciation
to be recorded through June 30, 20X6, $20.00. Memorandum No. 92.
DISCARDING A PLANT
ASSET WITH A BOOK VALUE
page 236

51. 51
June 30, 20X6. Discarded office table: original cost, $200.00; total accumulated
depreciation through December 31, 20X5, $140.00; additional depreciation
to be recorded through June 30, 20X6, $20.00. Memorandum No. 92.
DISCARDING A PLANT
ASSET WITH A BOOK VALUE
page 236

52. 52
June 30, 20X6. Discarded office table: original cost, $200.00; total accumulated
depreciation through December 31, 20X5, $140.00; additional depreciation
to be recorded through June 30, 20X6, $20.00. Memorandum No. 92.
DISCARDING A PLANT
ASSET WITH A BOOK VALUE
page 236

53. 53
June 30, 20X6. Discarded office table: original cost, $200.00; total accumulated
depreciation through December 31, 20X5, $140.00; additional depreciation
to be recorded through June 30, 20X6, $20.00. Memorandum No. 92.
DISCARDING A PLANT
ASSET WITH A BOOK VALUE
page 236

54. 54
June 30, 20X6. Discarded office table: original cost, $200.00; total accumulated
depreciation through December 31, 20X5, $140.00; additional depreciation
to be recorded through June 30, 20X6, $20.00. Memorandum No. 92.
DISCARDING A PLANT
ASSET WITH A BOOK VALUE
page 236

55. 55
June 30, 20X6. Discarded office table: original cost, $200.00; total accumulated
depreciation through December 31, 20X5, $140.00; additional depreciation
to be recorded through June 30, 20X6, $20.00. Memorandum No. 92.
DISCARDING A PLANT
ASSET WITH A BOOK VALUE
page 236

56. 56
June 30, 20X6. Discarded office table: original cost, $200.00; total accumulated
depreciation through December 31, 20X5, $140.00; additional depreciation to
be recorded through June 30, 20X6, $20.00. Memorandum No. 92.
DISCARDING A PLANT
ASSET WITH A BOOK VALUE
page 236
1. Record the entire amount depreciated.

57. 57
June 30, 20X6. Discarded office table: original cost, $200.00; total accumulated
depreciation through December 31, 20X5, $140.00; additional depreciation to
be recorded through June 30, 20X6, $20.00. Memorandum No. 92.
DISCARDING A PLANT
ASSET WITH A BOOK VALUE
page 236
1. Record the monetary loss.

58. 58
June 30, 20X6. Discarded office table: original cost, $200.00; total accumulated
depreciation through December 31, 20X5, $140.00; additional depreciation to
be recorded through June 30, 20X6, $20.00. Memorandum No. 92.
DISCARDING A PLANT
ASSET WITH A BOOK VALUE
page 236
1. Record the removal of the asset.

59. Depreciation > Expense vs. Accumulated
Contra
Asset

60. Depreciation > Expense vs. Accumulated

61. Depreciation > Expense vs. Accumulated

62. Depreciation > Expense vs. Accumulated

63. Gains / Losses on Plant Assets
 Book value of Asset = $500
 I sell it for $400
 Did I gain or lose?
 Debit/Credit?

64. Gains / Losses on Plant Assets
 Book value of Asset = $7,000
 I sell it for $9,400
 Did I gain or lose?
 Debit/Credit?

65. In the Journal -- Gains / Losses on
Plant Assets
 Gains on Plant Assets = Credit (think Revenue)
 Loss on Plant Assets = Debit (think Expense)

66. 66
June 30, 20X6. Discarded office table: original cost, $200.00; total accumulated
depreciation through December 31, 20X5, $140.00; additional depreciation to
be recorded through June 30, 20X6, $20.00. Memorandum No. 92.
REVIEW:
page 236

67. 673. Record entry to remove plant asset from accounts.
1. Compute the
gain or loss
on the sale.
2. Write the date, amount, and type of disposal.
SELLING A PLANT ASSET
page 237
1
2
3
January 4, 20X6. Received cash from sale of fax machine, $185.00:
original cost, $600.00; total accumulated depreciation through December
31, 20X5, $400.00. Receipt No. 60.

68. APLIA WT / OYO Part I
(first 3 Transactions)

69. 1. Compute the
original cost
of the new
plant asset.
TRADING A PLANT ASSET
page 238
1
4
June 27, 20X6. Paid cash, $850.00, plus old counter for new store counter:
original cost of old counter, $1,000.00; total accumulated depreciation through
June 27, 20X6, $765.00. Memorandum No. 130 and Check No. 154.
4. Record entry to remove old plant asset and add new plant asset.
2. Write the date and
type of disposal
and the disposal
amount.
2
3
3. Complete section 1 for
the new plant asset.

70. 3. Record entry to
remove plant
assets from
accounts.
1. Compute the gain on
sale of plant assets.
2. Write the date, type,
and amount of
disposal.
SELLING LAND AND BUILDINGS
page 239
13
January 2, 20X6. Fidelity Company sold land with a building for $97,000.00
cash; original cost of land, $25,000.00; original cost of building, $150,000.00;
total accumulated depreciation on building through December 31, 20X5,
$85,000.00. Receipt No. 105.
2

71. 71 LESSON 8-3
CALCULATING THE GAIN ON SALE
OF LAND AND BUILDINGS
page 240

72. APLIA WT / OYO

73. Lesson 8-4
Other forms of Depreciation

74. Not all Assets are the same

75. Read to Yourself
P: 242-244
 Chapter 8 Quizlet
 Build Outline in notes

76. Double Declining Method
 Accelerated depreciation in
which the amount of
depreciation that is charged to
an asset declines over time.

77. Double Declining Example
Need to calculate Declining Balance Rate

78. Double Declining Example

79. Double Declining Example

80. Double Declining Example

81. Double Declining Example

82. Double Declining Example
Year 1:
 BV x Rate = Annual Depreciation
 $10,000 x 50% = $5,000
 BV: 10,000 – 5,000 = $5,000
Year 2:
 $5,000 x 50% = $2,500
 BV: 5,000 - $2,500 = $2,500

83. Double Declining Example
Year 3:
 BV x Rate = Annual Depreciation
 $2,500 x 50% = $1,250
 BV: 2,500 – 1250 = Problems

84. Double Declining Example
Year 3:
 BV x Rate = Annual Depreciation
 $2,500 x 50% = $1,250
 BV: 2,500 – 1,000 = Salvage Value of $1,500
 We have fully depreciated the asset

85. Sum of Years Method
 Using fractions based
on the number of years
of a plant assets useful
life

86. Sum of Years

87. Sum of Years

88. Sum of Years

89. Sum of Years

90. Sum of Years

91. Sum of Years Example
Total Depreciation = OC – Salvage … $8,500

92. Sum of Years Example
Year 1:
 Total Depreciation x Fraction % = Annual Depreciation
 $8,500 x 33.3% (5/15) = $2,833.33
 BV: 8500 – 2833.33 = $5,667.67
Year 2:
 $8,500 x 27% (4/15) = $2,266.67
 BV: 5,667.67 – 2,266.67 = $3,400

93. Sum of Years Example
Year 3:
 Total Depreciation x Fraction % = Annual Depreciation
 $8,500 x 20% (3/15) = $1,700
 BV: 3,400 – 1,700 = $1,700
Year 4:
 $8,500 x 13% (2/15) = $1,133.33
 BV: $1,700 – 1,133.33 = $566.67

94. Sum of Years Example
Year 5:
 $8,500 x 7% (1/15) = $566.67
 BV: 566.67 – 566.67 = Fully Depreciated to SV

95. SL vs. DD vs. SOY
 Straight Line – Conservative
 DD – Aggressive
 SOY - Aggressive

96. Income Tax Deduction
 Depreciation allows a taxpayer to recover the cost or
other basis of certain property

97. Deduction Requirements:
 The taxpayer must own the property. Taxpayers may also
depreciate any capital improvements for property the
taxpayer leases.
 A taxpayer must use the property in business or in an
income-producing activity.
 The property must have a useful life of more than one
year.

98. MACRS
 Modified Accelerated Cost Recovery
System
 Method required by the IRS to be used
for income tax calculations
 Corporations use GAAP Depreciation
method for their own records
 MACRS for IRS reporting

99. MACRS Table

100. MACRS Asset Clarifications
3 year Depreciation
 Automobiles, Taxis
 Certain Manufacturing Tools
5 year Depreciation
 Heavy/Light use Trucks
 Nuclear Fuel Assemblies
 Information Systems
 (Computers, Tech)
7 year Depreciation
 Cattle
 Airplanes
10+ year Depreciation
 Furniture
 Land Improvements
 Railroad Cars
 Water Vessels

101. APLIA WT / OYO

104. 8-4 Other Methods Of
Depreciation
1. Declining-Balance Method
2. Sum-Of-The-Years’-Digits Method Of Depreciation
3. Comparison Of Three Methods Of Depreciation
4. Production-Unit Method Of Depreciation
5. Calculating Depreciation Expense For Income Tax
Purposes
6. Depletion

107. Sum-Of-The-Years’-Digits Method Of Depreciation
1. Calculate the fraction.
You calculate the fraction by adding up the
number of years.
For example, 5 years= 15 = 1+2+3+4+5
2. Then the last years number over the 15 is the
fraction used for the first year and so on.
3.Take the Beginning book value and subtract the
salvage value from it.
4. Then take that answer(Total Depreciation) by the
fraction and get the annual depreciation.
5. Then subtract the annual depreciation from the
beginning book value to get the ending book value for
that year.
6. Then repeat steps 3-5.

108. Calculating Depreciation Expense For Income Tax
Purposes
Take the original cost
multiply it by the percent
given to you and then
subtract the answer from
the original cost and
repeat every year.

109. Read to Yourself
P: 224 - 227
 Chapter 8 Quizlet
 Build Outline in notes

110. APLIA WT / OYO