Class 8.2 Slides_Amortization Depletion_Student (1).pptx

Class 8.2 Slides_Amortization Depletion_Student (1).pptx -...

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A310 – CLASS 8.2 Amortization/Depletion (Ch 11)
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COST ALLOCATION Property, plant, and equipment and intangible assets are purchased with the expectation that they will provide future benefits , usually for several years These assets are acquired to be used as part of revenue-generating operations The acquisition cost of these assets should be allocated to periods benefited by their use Cost allocation known as Depreciation For plant and equipment Depletion For natural resources Amortization For intangible assets
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INTANGIBLE ASSETS SUBJECT TO AMORTIZATION Legal, regulatory, or contractual provisions often limit the useful life of an intangible asset Useful life might sometimes be less than the asset’s legal or contractual life Useful life Expected residual value of an intangible asset usually is zero The residual value is not zero if at the end of the asset’s useful life to the reporting entity the asset will benefit another entity Residual value The method of amortization should reflect the pattern of use of the asset in generating benefits Allocation method
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USEFUL LIFE OF INTANGIBLE ASSETS
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EXAMPLE Hollins Corporation began operations in 2018. Early in January, the company purchased a franchise from Ajax Industries for $200,000. The franchise agreement is for a period of 10 years. In addition, Hollins purchased a patent for $50,000. The remaining legal life of the patent is 13
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