Finals Flashcards
________ is defined as the decrease in the value of a property, such as machinery,
equipment, building, or other structure, due to the passage of time.
Depreciation
Types of Depreciation
Physical Depreciation
Functional Depreciation
Changes in the price level of similar properties
What type of depreciation where:
a. Deterioration due to the effects of various chemical and mechanical factors on the
materials composing the property. Included in this are rusting of metal parts, the decay
of wooden parts of a structure, and the discoloration and cracking of plastic parts.
b. Wear and tear due to abrasion, friction between moving parts of equipment, impact,
vibration, or fatigue of the materials in the property. It is determined by the use rather
than the age. Sudden physical damage to a property due to accidents and disasters, such
as fire, flood, earthquake, tidal waves, and other unforeseen acts of nature are excluded
from the determination of a decrease in value.
Physical depreciation
________ which is due to a decrease in the demand for the function of the
equipment which it was designed. Such depreciation is caused by the following:
a. Inadequacy of the equipment.
b. Obsolescence caused by the invention of more efficient equipment and machines to
perform the same task.
c. Changes in methods of production.
d. Changes in style and designs of the goods produced on the equipment.
e. Transfer of population due to various causes.
Functional depreciation
If the price level rise during the life of a
property, even if the original investment has been recovered through proper depreciation
procedure, the recovered capital will be insufficient to provide an identical replacement. Thus, it is the capital that has depreciated and not the property.
Changes in the price levels of similar properties
If the price level rise during the life of a
property, even if the original investment has been recovered through proper depreciation
procedure, the recovered capital will be insufficient to provide an identical replacement. Thus, it is the capital that has depreciated and not the property.
Changes in the price levels of similar properties
_____ depends upon the physical or economic life of the equipment and its first cost.
Depreciation Cost
________ is usually difficult to determine accurately. In many cases, the
determination of life is dependent to a great extent upon the experience of the men managing the
enterprise in the use of similar equipment.
Life of any property
________ includes the original purchase price, freight and transformation charges to the site, installation expenses, and initial taxes and permits to operate,and all other expenses needed to put the equipment into operation. The amount to be recovered,equal to the depreciation cost, is the difference between the first cost and the salvage or scrap value of the equipment.
first cost of any property
________ sometimes called second-hand value is defined to be the amount for which
the equipment or machine can be sold as second hand. It implies that the machine can still perform
its function.
Salvage Value
_______ is the amount the equipment can be sold for when disposed of as junk.
This implies that the equipment cannot be used anymore for the function for which it was designed.
Scrap or junk value
______ present value or current value of the asset.
Book Value
________a method that is simple and most widely used than any other method. Also, a method of calculating depreciation assumes that an asset will lose an equal amount of value each year. In short, it is assumed that the loss in value is directly proportional to the age of the equipment or asset or uniform amount.
The Straight-Line Methods
a method of depreciation that assumes that there is a savings account set up to replace an asset at the end of its life. In this method, it is assumed that a sinking fund is established in which funds will accumulate for replacement purposes. It is relatively simple, though it will require the use of annuity tables in the absence of the electronic calculator.
Sinking Fund Method
A method of depreciation that assumes that annual depreciation is a fixed percentage of the boom value of the property per year.
Declining Balance Method
Declining Balance Method is sometimes known as the __________.
Constant Percentage Method or Matheson Formula
this method is based on the assumption that assets are generally more productive when they are new and their productivity decreases as they become old.
Sum of the Years-Digit (SYD) Method
Certain natural resources such as mines, quarries, oil and gas wells, and timber lands are
called “wasting” or “depleting” assets due to the gradual extraction of the contents of such
properties. To provide for the recovery of capital invested in such assets, a depletion fund is
provided. The annual charge set aside in the fund is called depletion cost rather than depreciation cost.
Depletion
It is usual practice to return annually a part of the investment of each investor instead of
accumulating a depletion fund. The yearly amount paid to an investor consists of TWO PARTS:
part of the capital invested and the dividends or profit of the investor
The depletion charge depends upon the initial cost of the property and the number of units in the property.
The Unit or Factor Method
This allows a fixed percentage of the gross received during a year to be the depletion charge. Consequently, the total depletion charges may exceed the initial cost of the property. However, it is required that for any year the depletion charge should not exceed 50% of the net taxable income for that year obtained by deducting all expenses excluding depletion from the gross income.
The Percentage or Depletion Allowance Method
____ is the sum of its first cost and the present worth of all costs for replacement, operation, and maintenance for a long time or forever.
Capitalized cost of any property
a natural extension and application of perpetuity
Capitalized cost
______is the sum of the annual depreciation cost,
interest of the first cost, and the annual operating and maintenance costs.
Annual cost of any property
It is such a cost that is able to mark directly any particular cost such as raw materials, labor
included operating expenses and some other costs are belongs to the _________. These costs are bound in unit.
For example, we can say a total cost of an advertisement for several products. The
________ has some subcategories.
Direct cost
_________ refers to that material that is related to the entire finished product. This material is a part to complete any product. It can have imposed conveniently on a particular product. The purchased and upcoming requisite products are included in the direct element. As like, all kinds of initial packing material.
Direct element
________ means the paid salary to the employee who is directly engaged in manufacturing, handling, and processing a product. Actually, they are responsible for the observation and maintenance of the product also.
Direct labor
