Lecture15 - Lecture 15 Property, Plant and Equipment...

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Lecture 15 Property, Plant and Equipment PP&E Accounting for
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Property, Plant and Equipment (at Original Cost) Accumulated Depreciation Beginning Balance Beginning Balance Cost of new acquisitions including the capitalized value of leased PP&E [Note that for self- constructed PPE, the cost will included interest costs incurred during the period of construction – capitalized interest] Depreciation costs for the current period relating to normal business activities Disposal (at original cost) related to normal business activities Accumulated dep'n for PP&E disposed of in normal business activities Expenditures for improvements and betterments 1 Write-down 2 (resulting from permanent impairment) FCTA (debit or credit) FCTA(debit or credit) Ending Balance Ending Balance 1 Alternatively, expenditures for improvements and betterments may also be recorded as a debit to Accumulated Depreciation 2 Alternatively, write-downs might be recorded as a credit to Accumulated Depreciation
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Property, Plant and Equipment in the Cash Flow Statement (1) or (2) Operations: Net Income Net Income (as reported) + Dep'n Expense + Dep'n Expense + Write-down Loss + Write-down Loss + Loss on Disposal Gain on Disposal + Loss on Disposal Gain on Disposal Cash from Operations Cash from Operations Investing: Cash proceeds from Disposals/Retirements = NBV + Gain Loss Cash proceeds from Disposals/Retirements NET of Acquisitions OR Cash used for Acquisitions Cash used NET of Disposals/Retirements Cash from Investing Cash from Investing
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Disclosure Firms are required to make the following disclosures with respect to their PPE: The carrying values (i.e., net book values) of the major classes of PPE The amount of accumulated depreciation (by major classes or in total) The method(s) used to compute depreciation. The amount of interest capitalized in PPE for the period. Some firms will also disclose the following information to the SEC on Form 10-K: Schedule V - A reconciliation of the beginning and ending balances of the major classes of PPE (Gross). This separately identifies changes caused by additions, retirements, adjustments, and any other changes. Schedule VI - A reconciliation of the beginning and ending balances of Accumulated Depreciation for the major classes of PPE. This separately lists additions charged to cost and expenses, retirements, and any other changes.
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What happens when estimates change? On January 1, 20x1, a firm acquired a depreciable asset at a cost of $160,000. The estimated useful life of the asset and its salvage value were determined to be 20 years and $10,000 respectively. The firms uses the straight line method for depreciation. What is annual depreciation? (160,000-10,000)/20 = 7,500 At the end of 20x10 (10 years later) what would the balance sheet look like?
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This note was uploaded on 05/20/2010 for the course ACCT 101 taught by Professor Briancadman during the Spring '10 term at Penn College.

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Lecture15 - Lecture 15 Property, Plant and Equipment...

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