Chapter 11 - Chapter 11: Productive Life Issues for Long...

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Chapter 11: Productive Life Issues for Long Term Assets I. Depreciation A. Conceptual Rationale: PRIMARY: MATCHING (I/S Perspective) SECONDARY: VALUATION (B/S Perspective) B. Terms: 1. Service Life 2. Allocation Base (which means something quite different in Cost Accounting) “depreciable base” or “depreciable cost” are better terms in my opinion. C. Expense Recognition: Depreciation methods a. Straight-line b. Accelerated (e.g., Declining Balance, Sum-of-years Digits) 1. Declining Balance a. The straight-line rate b. The declining balance 2. Sum-of-years Digits 3. Units of Output/Service
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D. Choosing Accelerated: (Remember what Primary Rationale for Depreciation Is) Units of Output/Service: E. Accounting: The never ending parade of Allowance/Reserve/Accumulation Accounts Accum. Depr. Accounting (basic): Credits to Accumulated depreciation with debits to depreciation expense. Purpose: to allow users to independently evaluate “cost” of asset (B/S perspective) from the amount this cost has been reduced over time for accounting “matching” purposes (I/S perspective). Asset At “Cost” Accumulated Depr. Asset at “Net”
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F. Group Depreciation ( SKIP) G. Partial Periods: Problem: Purchase an asset during a period instead of at its start or end. Mainly causes problems for accelerated depreciation methods.
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This note was uploaded on 02/28/2010 for the course SOM aim taught by Professor Are during the Spring '10 term at Texas El Paso.

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Chapter 11 - Chapter 11: Productive Life Issues for Long...

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