ch 11 depreciation

ch 11 depreciation - CH.11 DEPRECIATION, DEPLETION, AND...

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1 CH.11 DEPRECIATION, DEPLETION, AND IMPAIRMENTS. I. DEPRECIATION. 1. GENERAL BACKGROUND. - DEPRECIATION IS A DECLINE IN SERVICE POTENTIAL OF TANGIBLE ASSETS DUE TO PHYSICAL AND ECONOMIC FACTORS. - THE PROCESS OF ALLOCATING THE COST OF TANGIBLE ASSETS TO EXPENSE OVER THE PERIOD OF USE. - DEPRECIATION BASE = THE ORIGINAL COST - THE EXPECTED RESIDUAL VALUE. - ESTIMATED SERVICE LIFE: LIMITED BY ECONOMIC FACTORS SUCH AS INADEQUACY, SUPERSESSION, AND OBSOLESCENCE. - PHYSICAL LIFE: LIMITED BY PHYSICAL FACTORS SUCH AS WEAR AND TEAR. 2. METHODS. 1) ACTIVITY METHODS. A. ASSUME THAT DEPRECIATION IS A FUNCTION OF USE. B. THE LIFE OF THE ASSET IS CONSIDERED IN TERMS OF EITHER OUTPUTS IT PROVIDES OR THE NUMBER OF UNITS OF ACTIVITY IT WORKS. C. D/E = DEPRECIATION BASE * (UNITS THIS YEAR / TOTAL ESTIMATED UNITS). E.G. CARS, TRUCKS, . .. 2) STRAIGHT-LINE METHOD. - ASSUME THAT DEPRECIATION IS A FUNCTION OF TIME. 3) ACCELERATED DEPRECIATION METHODS. - RECOGNIZE HIGHER DEPRECIATION EXPENSES IN THE EARLIER YEARS THAN THE LATER YEARS. A. SUM-OF-YEAR DIGITS METHOD.
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2 B. DECLINING BALANCE METHODS. - THE DECLINING BALANCE RATE REMAINS CONSTANT. - THE RATE IS APPLIED TO THE REMAINING BOOK VALUE. - SALVAGE VALUE IS IGNORED. - THE ASSET IS NOT DEPRECIATED BELOW SALVAGE VALUE. 4) INVENTORY SYSTEMS: USED FOR SMALL ASSETS SUCH AS HAND TOOLS. - DEPRECIATION EXPENSE = THE BEGINNING INVENTORY + PURCHASES - ENDING INVENTORY. 5) RETIREMENT SYSTEM; USED FOR NUMEROUS INTERCHANGEABLE ITEMS THAT HAVE SMALL UNIT VALUE. - D/E = THE COST OF THE RETIRED ASSET - THE SALVAGE VALUE.
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ch 11 depreciation - CH.11 DEPRECIATION, DEPLETION, AND...

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