2.3 SWLecture3_Deprecn_Learn

2.3 SWLecture3_Deprecn_Learn - 5-1ACIS 211Financial...

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Unformatted text preview: 5-1ACIS 211Financial AccountingWeek 2 Lecture 3ASSETSASSETSProperty, Plant and EquipmentDepreciation and Disposal5-2DEPRECIATION & DISPOSAL of PPELearning ObjectivesUnderstand the role of accounting in allocating the depreciable amount of an item of property, plant and equipment over its expected useful life.Be aware of factors that must be considered in determining the useful life of a depreciable asset.Understand the various approaches (straight-line, sum-of-digits, declining balance, production basis) for allocating the depreciable amount of a non-current asset to particular financial periods.5-3Learning Objectives (cont.)Understand when to start depreciating a depreciable asset.Understand why, when, and how depreciation rate and method is revised.Describe how to account for Land and Buildings.Understand how to account for asset modification.Demonstrate accounting treatment for asset disposal.Know the disclosure requirements of NZ IAS 16 Property, Plant and Equipment as they pertain to depreciation.Reading: Deegan & Samkin Chapter 5, NZ IAS 165-4IntroductionDepreciation:Recognises the decrease in the service potential of a non-current asset across time.Involves allocating the historical cost of an asset or revalued amount over periods in which benefits are expected to be derived.Involves recognizing such allocation as an expense, unless included in another assets carrying amount.Should not be confused with the decline in market value of an asset over time.5-5Introduction (cont.)Depreciable assetsNon-current assets having limited useful lives.Depreciable assets may comprise a significant proportion of total assets.Depreciation expense can have a significant effect on profits eg. Deegan & Samkin -BHP and News CorpEg Air New Zealand, Fonterra, etc5-6Introduction (cont.)In determining how to allocate the historical cost of an asset, three issues must be addressed: 1.Which depreciable base should be used for the asset?2.What is the assets useful life?3.Which method of cost apportionment is most appropriate for the asset?5-7Depreciable Amount (base) for AssetsDepreciable amountCost of a depreciable asset or other amount substituted for cost in the financial statements less its residual value. Residual valueThe estimated amount the entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life (NZ IAS 16, par. 6)....
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This note was uploaded on 12/23/2009 for the course BCOM ACIS 211 taught by Professor Susanwild during the Spring '09 term at Canterbury.

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2.3 SWLecture3_Deprecn_Learn - 5-1ACIS 211Financial...

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