50 - Depreciation formula needs to be revised Disposal of...

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Depreciation for Tax Purposes Most companies use straight-line for external reporting Most companies use accelerated depreciation for tax purposes Modified Accelerated Cost Recovery System (MACRS) Larger deductions early in assets’ lives helps reduce taxes and increase cash flow Partial Year Depreciation Companies purchase plant assets when needed–not just at beginning of year To compute depreciation for a partial year 1. Compute depreciation for a full year 2. Multiply by fraction of the year the asset is owned Not applicable to units-of-production Life is not based on years Changing Useful Life of Asset A company may change useful based on new information or experience Called a change in estimate
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Unformatted text preview: Depreciation formula needs to be revised Disposal of Plant Assets When a company is finished using an asset, the asset can be: Discarded Sold Exchanged Before accounting for the disposal: Depreciation is updated Final book value is determined Discarding Plant Asset Accumulated depreciation and cost of asset removed from records Loss recorded (unless asset is fully depreciated and no residual value) E7-23 Book value at time of sale: Cost $ 8,700 Accumulated depreciation 2004 ($8,700 x 2/5) $ 3,480 2005 ($8700 - 3480) x 2/5 $ 2,088 January - September x 9 /12 $1,566 $5,046 Book value September 30 $3,654 Cash received $2,500 Loss on sale $1,154...
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This note was uploaded on 06/15/2011 for the course ACCT 23020 taught by Professor Dorff,p during the Spring '08 term at Kent State.

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50 - Depreciation formula needs to be revised Disposal of...

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