Chapter Six – Quick Check – Plant Assets and Intangibles
This chapter is concerned with assets that provide benefit to the entity for more than one period.
issues we have to focus on are: acquisition; expensing the asset while it is being used (depreciation,
depletion, amortization); and disposition.
This question deals with acquisition.
How do we assign values to individual
items when we purchase a basket of items?
We allocate the costs according to the
the basket price often differs from the sum of the appraised
=42.5% x 1,500,000
=33.75% x 1,500,000
=23.75% x 1,500,000
The wrong answer is that depreciation creates a fund. Answers A, B, and D are
Calculation of depreciation:
There are different methods of calculating depreciation.
(Cost – estimated salvage value)/Estimated Life=Annual depreciation expense
Double-declining balance method: (Cost – accumulated depreciation)x(2 x straight-line rate)=Annual
the calculation is for a complete year so if we have a fractional year the expense must be prorated.
Straight-line method for a fractional year.
(25,000 – 2,500)/5 = 4,500 x (4 months / 12 months) = 1,500
Book value is cost minus accumulated depreciation.
the facts now show
the asset was purchased on January 1
of X3 so we have two years of depreciation.