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ch 11 LN NOA utilization final version

ch 11 LN NOA utilization final version - 11-1Ch 11...

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Unformatted text preview: 11-1Ch 11 Investments in Noncurrent Operating Assets—Utilization and RetirementLearning Objectives1.Use straight-line, accelerated, and use-factor depreciation methods to compute annual depreciation expense. 2.Identify whether an asset is impaired and measure the amount of the impairment loss using both U.S. GAAP and IASB standards.3.Account for the sale of depreciable assets in exchange for cash and in exchange for other depreciable assets.11-2Use straight-line, accelerated, and use-factor depreciation methods to compute annual depreciation expense.OBJECTIVE 1•The use of assets during the period should be reported as an expense of that period.•Accountants estimate this costs for particular assets by using a systematic method to allocate the recorded costs, called:–Depreciation for tangible property, such as equipment.–Depletion for minerals and natural resources.–Amortization for intangible assets, such as patents and copyrights.11-3•Depreciation is a systematic allocation of the cost of a long-lived asset over its useful life..•Factors Affecting the Periodic Depreciation Charge: 1. Asset cost 2. Residual or salvage value 3. Useful life 4. Pattern of useDepreciation (Case)Schuss Boom Ski Manufacturing acquired a polyurethane plastic-molding machine at the beginning of 2011 for $100,000. It has an estimated life of five yearsand an estimated residual value of $5,000.11-4Depreciation=Cost – Residual ValueNumber of YearsDepreciation=$100,000 – $5,0005Depreciation=$19,000Straight-Line Depreciation(continues)Straight-line depreciationrelates depreciation to the passage of timeand recognizes equal depreciation in each year of the life of the asset.11-5Straight-Line DepreciationEquals the projected residual value11-6Declining-Balance Method•The declining-balance depreciation method provides decreasing charges by applying a constant percentage rate to a declining asset book value. First, the constant percentage must be calculated.•If double-declining balance depreciation is used, then the percentage is twice the straight-line rate. 11-7Declining-Balance MethodThus, the molding machine would have a straight-line rate of 20% (1 ÷ 5). This number is doubled to arrive at the double-declining rate of 40%. Depreciation = BV x DDB rate = (Cost – Acc. Depr) x 40%The chart shown next demonstrates how the constant rate is applied to the remaining asset book value each year....
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ch 11 LN NOA utilization final version - 11-1Ch 11...

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