Exam 6 (Modules 13, 14, & 15) Flashcards
includes all expenditures necessary to get an asset in place and ready for use
cost
cost includes what (6)?
invoice, shipping, insurance during shipping, assembly, installation, testing
the process of allocating the cost of an asset (PP&E) over its useful life
depreciation
an estimate of an assets value at the end of its useful life
salvage value
the length of time it will be used by the company to generate the revenue
useful life
land is never _______
depreciated, it always appreciates (increases value)
charges the same amount of depreciation to each period (year) of the assets useful life
straight line depreciation
what is the equation for the straight line method?
cost - salvage value = annual depreciation
the total of all recorded depreciation on an asset as of a specific date
accumulated depreciation
states that assets should be recorded at their cost at the time the asset was purchased or created. the amount of that asset cannot be increased or decreased over the course of its useful life
cost principle
what is the equation to get the book value?
cost of asset - accumulated depreciation = book value of asset
charges a varying amount of depreciation each period (year) depending on the assets usage
units of production depreciation
what is the formula for calculating units of production depreciation?
cost - salvage value/ total units of production = depreciation per unit of production
an accelerated form of depreciation. assets are depreciated faster in the early years of the asset’s life but slower in the later years.
double declining balance depreciation (DDBD)
what are the three steps for DDBD?
1.) Calculate the assets’ straight line depreciation rate (1/ useful life = straight line depreciation rate)
2.) Double step 1
3.) Multiply step 2 answer with the beginning book value
the straight line method provides a _____ amount of depreciation each years of the assets useful life, regardless of whether the asset was used
fixed
what is the most common method for financial reporting purposes?
straight line method
The units of production method provides for _____ amounts of depreciation each year based on the asset’s usage.
varying
what method is best at matching the cost of the asset with the revenues it helps to generate?
units of production method
The double declining method provides for ____ amounts of depreciation at the beginning of the assets useful life.
increased
What method is often used for income tax purposes as it provides for a larger depreciation deduction which reduces taxable (net) income and the amount of income taxes a buisness must pay
double declining balance method
What are the three options a company has to dispose of its PP&E?
1.) discard or scrap the equipment
2.) sell the equipment
3.) exchange the equipment
what are the four steps a company must follow in its accounting records when it disposes of or sells equipment?
1.) bring the depreciation up to date (if fully depreciated then skip)
2.) begin a journal entry in which the asset and its accumulated depreciation is removed from the books
3.) record any cash received or paid in the disposal
4.) record any gain or loss on the disposal
what is the formula to figure out gain/loss?
cash received - book value of asset = gain or loss
