Chapter 11-After - From Readers Digest While I was shopping...

This preview shows page 1 - 7 out of 63 pages.

From Reader’s DigestWhile I was shopping in a pharmacy, a couple of teenagers came in. They were dressed in leather, chains, and safety pins. The boy had blue and purple spiked hair and the girl's hair was bright yellow. Suddenly the boy picked up a pair of sunglasses and tried them on. "What do you think?" he asked his girlfriend. "Take them off!" she howled. "They make you look ridiculous."
 A woman from our office brought in her new bundle of joy along with her seven-year-old son. Everyone gathered around the baby, and the little boy asked, "Mommy, can I have some money to buy a soda?" "What do you say?" she said. He replied, "You're thin and beautiful." The woman reached into her purse and gave her son the money. --Mercury NickseA family was celebrating their daughter's fifth birthday at a local restaurant when the little girl's father noticed her looking sadly at a moose head on the wall. Someone had placed a party hat on its head. Her father knelt beside her and explained why some people hunt animals. "I know all that," the child sobbed. "But why did they have to shoot him at his birthday party?"  
CHAPTER 11DEPRECIATION, IMPAIRMENTS, AND DEPLETIONSommers – Intermediate I
Is Accounting Helpful for Valuation?Conceptual Framework (FASB)Purpose of Accounting: “financial reporting should provide information to help investors, creditors, and others assess the amounts, timing, and uncertainty of prospective net cash inflows to the related enterprise.”Caveat: Accounting information “may help those who desire to estimate the value of a business enterprise, but financial accounting is not designed to measure directly the value of an enterprise.”
Discussion QuestionsQ11–1 Distinguish among depreciation, depletion, and amortization.The differences among the terms depreciation, depletion, and amortization are that they imply a cost allocation of different types of assets. Depreciation is employed to indicate that tangible plant assets have decreased in carrying value. Where natural resources (wasting assets) such as timber, oil, coal, and lead are involved, the term depletion is used. The expiration of intangible assets such as patents or copyrights is referred to as amortization.
Allocating costs of long-term assets:Fixed assets = Depreciation expenseIntangibles = Amortization expenseNatural resources = Depletion expenseDepreciation is the accounting process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset.Cost Allocation
Some of the cost is expensed each period.Some of the cost is expensed each period.Cost Allocation – An OverviewThe matching principle requires that part of the acquisition cost of operational assets be expensed in periods when the future revenues are earned.

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture