Chapter 7 - Chapter 7: Fixed Assets and Intangible Assets...

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Chapter 7: Fixed Assets and Intangible Assets
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Nature of Fixed Assets Long-term or relatively permanent assets. Called tangible because they exist physically. Owned and used – not offered for sale as part of normal operations. Also called plant assets or property, plant, and equipment.
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The Cost of Fixed Assets All costs necessary to get the asset in place and ready for use: Purchase price Freight Installation Material and labor for self-constructed assets Others…
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Revenue and Capital Expenditures Once assets are acquired and placed in service, additional expenditures may be incurred: Revenue expenditures Capital expenditures
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Accounting for Depreciation Over time, fixed assets other than land lose their ability to provide services. The cost of these fixed assets should be expensed in a systematic manner during their useful lives. This is called depreciation.
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Two Common Depreciation Methods Straight-Line Same amount of depreciation each year. Double-Declining-Balance Accelerated method that provides more depreciation in earlier years.
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Cost – Estimated Residual Value Estimated Useful Life Example: Assume a $24,000 depreciable asset with an estimated 5-year useful life and estimated $2,000 residual value. Annual depreciation expense:
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Chapter 7 - Chapter 7: Fixed Assets and Intangible Assets...

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