Professional Documents
Culture Documents
C1
PLANT ASSETS
Tangible in Nature
Slide 2
C1
PLANT ASSETS
Decli
ne in
asse
over
its us t value
eful l
ife
Acquisition
Acquisition
1.
1. Compute
Compute cost.
cost.
McGraw-Hill/Irwin
2.
2.
3.
3.
Use
Use
Allocate
Allocate cost
cost to
to periods
periods
benefited.
benefited.
Account
Account for
for subsequent
subsequent
expenditures.
expenditures.
Disposal
Disposal
4.
4. Record
Record disposal.
disposal.
Slide 3
P1
COST DETERMINATION
Purchase
price
Acquisiti
on
Cost
All expenditures
needed to
prepare the
asset for its
intended use
Slide 4
P1
LAND
Title insurance premiums
Purchase
price
Delinquent
taxes
Real estate
commissions
Surveying
fees
Title search and transfer fees
Slide 5
P1
LAND IMPROVEMENTS
Parking lots, driveways, fences, walks,
shrubs, and lighting systems.
Depreciate
over useful
life of
improvement
s.
McGraw-Hill/Irwin
Slide 6
P1
BUILDINGS
Cost of purchase or
construction
Title fees
Brokerage
fees
Attorney fees
Taxes
McGraw-Hill/Irwin
Slide 7
P1
Taxes
Transportation
charges
Installing,
assembling, and
testing
McGraw-Hill/Irwin
Insurance while
in transit
Slide 8
P1
McGraw-Hill/Irwin
Slide 9
C2
DEPRECIATION
Depreciation is the process of allocating the
cost of a plant asset to expense in the
accounting periods benefiting from its use.
Balance Sheet
Acquisition
Cost
(Unused)
McGraw-Hill/Irwin
Income Statement
Cost
Allocation
Expense
(Used)
Slide 10
FACTORS IN COMPUTING
DEPRECIATION
C2
1. Cost
2.
Salvage Value
3.
Useful Life
McGraw-Hill/Irwin
Slide 11
P2
DEPRECIATION METHODS
1.
Straight-line
2.
Units-of-production
3.
Declining-balance
Asset we will
depreciate
$
10,000
McGraw-Hill/Irwin
Cost
Salvage
value
1,000
Depreciable $
cost
9,000
Slide 12
P2
STRAIGHT-LINE METHOD
Depreciation
Expense for Period
$
10,000
Cost
Salvage value
1,000
$
Depreciable cost
Useful life
Accounting periods
Units inspected
McGraw-Hill/Irwin
9,000
5 years
36,000
units
Slide 13
P2
Balance Sheet
Presentation
$
10,
Machinery 000
Less:
accumulate
$
McGraw-Hill/Irwin
Slide 14
P2
UNITS-OF-PRODUCTION METHOD
Step 1:
Depreciation
Per Unit
Step 2:
Depreciatio
n
Expense
McGraw-Hill/Irwin
Depreciatio
n
Per Unit
Number of Units
Produced
in the Period
Slide 15
P2
UNITS-OF-PRODUCTION METHOD
$
10,000
Cost
Salvage value
Step 1: cost
Depreciable
Useful Depreciation
life
Per Unit
Accounting
periods
1,000
$
9,000
$9,000
36,000
= $025/unit
36,000
Stepinspected
2:
Units
units
Number of Units
Depreciation
Depreciation
= $025 7,000 = $1,750
Produced
=
Expense
Per Unit
in the Period
McGraw-Hill/Irwin
Slide 16
P2
DOUBLE-DECLINING-BALANCE
METHOD
Step 1:
Straight-line
rate
Step 2:
Double-decliningbalance rate
Step 3:
Depreciation
expense
McGraw-Hill/Irwin
Double-decliningBeginning period
balance rate
book value
40% $10,000 = $4,000 for 2009
Slide 17
C2
DOUBLE-DECLINING-BALANCE
METHOD
Depreciation
for the Period
Dep Dep
Beg reci reci
inni atio atio
ng n
n
Boo
k Exp Exp
Ye Val ens ens
ar ue e
e
End of
Period
Acc
umu
late Bo
d ok
Dep
reci
atio Val
n ue
$1
0,0
00
Initial
cost
$10
20 ,00
$4,0 $4,0 6,0
09
0 40% 00 00 00
20
6,0
2,40 6,40 3,6
McGraw-Hill/Irwin
Slide 18
A1
McGraw-Hill/Irwin
Slide 19
A1
McGraw-Hill/Irwin
Slide 20
C3
PARTIAL-YEAR DEPRECIATION
When
When aa plant
plant asset
asset is
is acquired
acquired during
during the
the year,
year,
depreciation
depreciation is
is calculated
calculated for
for the
the fraction
fraction of
of the
the year
year the
the
asset
asset is
is owned.
owned.
Cost
$
10,000
Salvage value
1,000
$
Depreciable cost
Useful life
Depreciation
==
Depreciation
Accounting periods
Depreciation
Depreciation ==
Units inspected
McGraw-Hill/Irwin
9,000
($10,000
($10,000 -- $1,000)
$1,000) 55 == $1,800
$1,800 for
for all
all 2009
2009
5 years
$1,800
= $450
$1,800 33//12
12 = $450
36,000
units
Slide 21
C3
Predicted
useful life
So depreciation
is an estimate.
Over the life of an asset, new information may
come to light that indicates the original estimates
were inaccurate.
McGraw-Hill/Irwin
Slide 22
C3
Salvage value at
date of change
$6,400 $400
= $1,500/year
4 years
Slide 23
C3
REPORTING DEPRECIATION
Dale Jarrett
Racing
Adventure
Office
furniture
$
and
45,
equipment 386
Shop and
123
track
,37
equipment 8
McGraw-Hill/Irwin
Slide 24
P3
ADDITIONAL EXPENDITURES
IfIf the
the amounts
amounts involved
involved are
are not
not material,
material,
most
most companies
companies expense
expense the
the item.
item.
McGraw-Hill/Irwin
Slide 25
P3
McGraw-Hill/Irwin
Slide 26
P4
Recording a
gain (credit)
or loss (debit).
Removing the
asset cost (credit).
Slide 27
P4
Recording a
gain (credit)
or loss (debit).
Removing the
asset cost (credit).
Slide 28
P4
McGraw-Hill/Irwin
Slide 29
P4
McGraw-Hill/Irwin
Slide 30
P4
McGraw-Hill/Irwin
Slide 31
P3
McGraw-Hill/Irwin
Slide 32
P5
NATURAL RESOURCES
Total cost,
including
exploration and
development,
is charged to
depletion expense
over periods
benefited.
Extracted from
the natural
environment
and reported
at cost less
accumulated
depletion.
Slide 33
P5
Step 1:
Depletion
Per Unit
Step 2:
Depletion
Expense
McGraw-Hill/Irwin
Depletion
Per Unit
Units Extracted
and Sold in
Period
Slide 34
DEPLETION OF NATURAL
RESOURCES
P5
$500,000 - $0
= $2 per ton
250,000 tons
If the company extracts and sells 85,000 tons of ore during the year:
85,000 tons $2 per ton = $170,000 depletion expense
McGraw-Hill/Irwin
Slide 35
P5
McGraw-Hill/Irwin
Slide 36
P6
INTANGIBLE ASSETS
Often
Often provide
provide
exclusive
exclusive rights
rights
or
or privileges.
privileges.
Noncurrent
Noncurrent assets
assets
without
without physical
physical
substance.
substance.
Intangible
Assets
Useful
Useful life
life is
is
often
often difficult
difficult
to
to determine.
determine.
McGraw-Hill/Irwin
Usually
Usually acquired
acquired
for
for operational
operational
use.
use.
Slide 37
P6
Record at
current cash
equivalent
cost, including
purchase
price, legal
fees, and filing
fees.
McGraw-Hill/Irwin
Patents
Copyrights
Leaseholds
Leasehold
Improvements
Franchises & Licenses
Goodwill
Trademarks & Trade
Names
Slide 38
A2
$ in
200 200 200 200
millions 6 5 4 3
$ $ $ $
Net
5,8 5,5 4,3 4,0
sales
45 07 06 00
Average
total
11, 8,2 4,5 4,3
assets 701 28 51 92
Total
asset
McGraw-Hill/Irwin
turnove 0.5 0.6 0.9 0.9
Slide 39
END OF CHAPTER 10
McGraw-Hill/Irwin
Slide 40