Chapter 8 - Accounting for Long term Assets Flashcards
Straight Line Depreciation Formula
Cost - Salvage Value / estimated useful life (in years)
Units of production Depreciation formula
Cost - Salvage Value/ estimated useful life (in units)
Double declining Balance Depreciation formula
200% / estimated useful life x beginning book value (cost)
Partial year depreciation formula
- Cost - salvage
- Divide number by Estimated useful life
- Multiply number by # of months / 12
Betterments
Aka improvements, are expenditures that make a plant asset more efficient or productive
Extraordinary repairs
Are expenditures extending the asset’s useful life beyond it’s original estimate.
The cost of betterments and extraordinary repairs are…
capitalized, recorded as assets
Entry when disposing of an asset where cash received is LESS than book value
DEBIT loss on sale of machine
Entry when disposing of an asset where cash received is MORE than book value
CREDIT gain on sale of machine
Depletion per unit formula
- Calculate depletion per unit Cost - salvage / total units of capacity
- Calculate depletion expense
depletion per unit x units extracted and sold in period
Entry to record disposal of asset
- Calculate book value =
Cost - accumulated depreciation - Eliminate asset cost
CREDIT asset account for cost - Eliminate accumulated depreciation
DEBIT accumulated depreciation account - Record loss or gain on disposal
If the number of tons extracted exceeds the number of tons sold a portion of depletion is allocated to…
Inventory
Depreciation for machinery in proportion to depletion formula
Cost of machine - salvage / total units of capacity
Age of building formula
Accumulated depreciation / annual depreciation
