Accounting Notes 3

Accounting Notes 3 - Operating Assets Property, plant, and...

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Operating Assets o Recorded cost includes all costs associated with getting the asset into usable form (tearing down old building, razing new building, major renovations) o Interest during construction period o Straight line method – (cost – salvage value) / estimated life = depreciation expense per period Units of production – [(cost – salvage value) / estimated units of production] * current period units = depreciated expense current period Double declining balance – (2 / estimated life) * book value = current period depreciation expense o Debit to depreciation expense, credit to accumulated depreciation (contra asset) o Changes in depreciation estimates o Prospective change Depreciation expense accounts are adjusted in future periods o Capital expenditures (vs. period expenses) Enhances the productivity (capital expenditure) Extends the useful life (capital expenditure) Changing a car engine Capital expenditures are added to the book value and depreciated Period expense – oil change (mandatory expense that doesn’t enhance productivity o Depreciation expense is taken all the way to disposal date
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Accounting Notes 3 - Operating Assets Property, plant, and...

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