Chapter 29: DepreciationStraight line and variable method Flashcards
Are normally usable for a number of years after which the asset have relatively little value
PPE
The difference when the original cost of an item of PPE and any remaining value when it is retired is an ______
Expense
Depreciation period
It begins when it is available for use
Depreciation ceases when it is
derecognized
Depreciation ceases when it is
derecognized
Depreciation does not cease when the asset becomes
Idle temporarily
Kinds of Depreciation
- Physical depreciation
- Functional or economic depreciation
Is related to depreciable asset’s wear and tear and deterioration over a period.
Physical Depreciation
Arises from inadequacy, supersession, and obsolescence.
Functional or economic depreciation
Arises when the asset is no longer useful because of an increase in the volume operations.
Inadequacy
Arises when a new asset becomes available and the new asset can perform the same function more efficiently and economically or for substantially less cost.
Superseesion
Is the catchall for economic or functional depreciation.
Obsolescence
Factors of Depreciation
- Depreciable amount
- Residual value
- Useful life
IS the costy of an asset or other amount substitued for cost, less the residual value.
Depreciable amount
Is the estimated net amount currently obtainable of the asset is at the end of the useful life.
Residual Value
Is either the period over which an asset is expected to be available for use or the number of production units xpected to be obtained from the asset.
Useful Life
Factors in determining useful life
- Expected usage of the asset
- Expected physical wear and tear
- Technical or commercial obsolescence
- Leal limits
Depreciation method
- Equal or uniform charge methods
- Variable charge or use-factor or activity methods
- Decreasing charge or accelerated or diminishing balance
- Other methods
The annual depreciation charge is calculate by allocating the depreciable amount equally over the number of years of stimated useful life.
Straight line method
Assets that are dissimilar in nature are grouped and treated as a single unit.
Composite method
All assets that are similar in nature are grouped and treated as a single unit.
Group Method
Assumes that depreciatio is more a function a use srather than passage of time.
Variable or activity methods
Two Variable methods
- Working hours method
- Output or production method
A depretion rate is computed by dividing the depreciable amount by the estimated useful life in terms of service hours.
Working hours method
Results in a charge based on the expected use or output. A depretion rate is computed by dividing the depreciable amount by the estimated useful life in terms of units of output.
Output or production method
