Changes in depreciation

Question 1

REVISING DEPRECIATION

Answer 1

– Capital expenditures during the useful life of an asset
– Impairments in the fair value of an asset
– Changes in the appropriate depreciation model, asset’s useful life or residual value
Changes in an asset’s fair value using the revaluation model

Question 2

Capital Expenditures during useful Life

Answer 2

Expenditures on existing capital assets are classified as operating or capital

Question 3

Ordinary repairs (operating expenditures):

Answer 3

– Costs to maintain operating efficiency and productive life of the long-lived asset
– Usually small amounts that occur frequently
– Debited to Repair Expense as incurred

Question 4

Additions and Improvements

Answer 4

Costs incurred to increase the asset’s operating efficiency, productive capacity, or expected useful life.
– Costs are usually large and happen less often than ordinary repairs
– Additions/improvements add to the future cash flows associated with that asset are not expensed - they are capitalized

Question 5

Impairments

Answer 5

carrying value > asset’s recoverable amount
= Carrying Amount − Recoverable Amount
Dr. Impaired loss
Cr. Acc depreciation

Question 6

Revised Depreciation calculations

Answer 6

Depreciation expense for current and future years is revised
1. Calculate the asset’s carrying amount at the time of the change
Cost – Acc. Dep to date + Capital Exp. – Impairment
2. Determine if the original annual depreciation method, residual value, and useful life are still appropriate. If not, determine which method, residual value and useful life.