Depreciable Assets and Depreciation Flashcards
pay close to attention
if we buy or sell during year then not full year depreciation
what
long term assets NOT held for sale (not inventory); fixed assets; ppe
physical dep
deterioration
functional dep
obsolete; inadequate
salvage value
is an estimate
estimated useful life
estimate change!
depreciable base
cost-sv
IFRS
estimates of useful life, salvage value etc. should be reviewed for appropriateness at each b/s date -> not a requirement under US GAAP
component depreciation
advantage -> more accurate; for each item in the class vs. class iteself
component depreciation
advantage -> more accurate; for each item in the class vs. class itself
problem on f4-45 machine cylinder inspection cost depreciated separately
composite/group
entire class of asstes -> may be dissimilar assets or a group of similar assets
AVERAGE economic lives of a number of property units and depreciating the entire class over a single life
no gain or loss on that individual asset recognized when one asset in the group is sold at a gain or loss
you just
dr. cash for 80
cr. cost 120
dr. acc dep plug
composite
problem on page f4-46
dissimilar
different salvage values; different useful lives
3 machines (doesnt matter if similar or not)
cost: add all costs
sv: add all sv
Depreciable value = cost -sv
Useful life:
find annual depreciation for each machine; sum to find total depreciation expense
total depreciable base/total depreciation expense = average life
average composite rate rate: total dep expense/ total historical cost
group
similar
if an asset is sold and part of group or composite
dr. cash (selling price)
dr. acc dep (plug)
cr. asset disposed (hist cost)
straight line
service potential declines with time
sum of the years’ digits
higher dep exp in the early years and lower charges in later years
1) sum of digits: 5 years = 5+4+3+2+1 = 15 base
2) year 1 -> 5 (number of years rem at beg of that year)/15base
year 2-> 4/15base
5(5+1)/2 -> general formula for sum of digits
base for straight line and sum of digits, and unites of production
cost-sv value
double declining
cost-acc dep
rapid obsole
dep expense: 2* (1/useful life) (always same) * (cost-acc dep)
ignore SV
USE COST-ACC DEP
cannot be dep below SV; max acc dep -> cost -sv
last period dep will be plug most likely
units of production method
[(cost-sv)/total estimated units of production] * actual units produced during the year
units of production
service potential declines with us NOT time like plane
THIS IS THE ONLY METHOD THAT MAKES DEPRECIATION A VARIABLE COST and not a fixed expense
partial year depreciation IMP
dep expense is taken only in the portion os the year the asset is used; from the date it is placed into service; before it is disposed off
sale of an asset during its useful life
dr. cash received from sale
dr. acc dep of asset sold to date of sale
cr. asset that is sold at its historical cost
cr. gain/loss is plug
writing off a fully depreciated asset
dr. acc dep (100%)
cr. asset at its historical cost (100%)
nbv does not change
total and permanent impairment
dr. acc dep per records (what is given)
dr. loss due to impairment
cr. asset at full cost
this loss unusual or infrequent on the i/s
in the top 3 cases
know acc dep; indiividually; dont use it as plug
only plug acc dep when you cant calculate
depletion
natural resources
purchase: buy it + prepare it for removal of resource so like drilling cost land development cost etc. + estimated restoration cost
sv=residual value
base: cost-residual value
depletion
GAAP: based on recoverable units
base/recoverable or extractable units = rate/unit
rate * units produced or removed extracted
depletion cogs
rate * units sold
the units that are not sold are included in inventory as direct materials or inventory
