ORIE 3150 class notes September 28 2010

ORIE 3150 class notes September 28 2010 - 1 2 3 1 2 3

Info icon This preview shows pages 1–3. Sign up to view the full content.

ORIE 3150 Depreciation Methods September 28, 2010 A. Long term assets have the following characteristics: 1. Useful life of more than one year. 2. Acquired for operation of the business. 3. Are not intended for resale to customers. B. Tangible assets have physical substance. 1. Land 2. Plant, buildings, and equipment (a.k.a., plant assets) 3. Natural resources -timber, ore, oil, gas, and coal. C. Intangible assets have no physical substance. Ex.: patents, copyright, goodwill. D. Most long term assets are used up. They lose value over time. We must recognize this lost value each period as an expense. We allocate expense to each period over the useful life of the asset. E. The period allocation of expenses for plant, buildings, and equipment is depreciation. Can we depreciate land? No. We can put land improvements in a separate account (called Land Improvements) and depreciate them, though. Typical land improvements are fences, parking lots, driveways, and signs. F. The period allocation of the benefits of natural resources is called depletion. Usually on a per ton mined basis (for ore), on a stumpage or per-tree basis (for pulp wood), on a board-feet basis (for timber), on a per barrel basis (for oil), or on a per million cubic feet basis (for natural gas). G. The period allocation of intangible assets is called amortization. H. The unexpired part of the cost of an asset is called its book value or carrying value. Ex. For plant assets, Book value = cost – accumulated depreciation. Or, simply use the combination T accounts! So, for long term assets, the historical cost is kept in one T-account, and the accumulated depreciation (another contra-asset account) is kept in a separate T-account. The combination of the two T-accounts is the book value.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

I. The interest on a loan used to purchase an asset is expensed. This interest is not included as part of the cost of the asset.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.
  • '10

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern