Chapter_11_Depreciation

Chapter_11_Depreciation - Chapter 11 Depreciation Copyright...

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Copyright Oxford University Press 2009 Chapter 11 Depreciation
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Copyright Oxford University Press 2009 Basic Aspects of Depreciation Historical Depreciation Methods Modified Accelerated Cost Recovery System (MACRS) Depreciation and Asset Disposal Unit-of-Production Depreciation Depletion Spreadsheets and Depreciation Chapter Outline
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Copyright Oxford University Press 2009 Decline in value of an asset due to deterioration or obsolescence Systematic allocation of an asset’s cost over its useful or depreciable life (accountant’s definition) The latter definition is the business definition Basic Aspects of Depreciation
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Copyright Oxford University Press 2009 Expenses: Part of regular business operations “Consumed” over short period of time Sometimes recurring Do not lose value gradually over time Subtracted from business revenues as they occur Reduce income taxes as they can be written off when they occur Examples: labor, utilities, materials, insurance,… Depreciation and Expenses
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Copyright Oxford University Press 2009 Depreciation: Business costs due to capital assets are not fully written off when they occur Capital assets lose value gradually over time Capital cost must be written off or depreciated over its depreciable life or recovery period Reduce the taxable income, and thus reduce income taxes as they were written off It is a non-cash cost Examples: building, plants, machines,… Depreciation and Expenses
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Copyright Oxford University Press 2009 A item is depreciable if: It must be used for business purposes to produce income; It has useful life that can be determined and is greater than one year; and It is an asset that decays, gets used up, wears out, becomes obsolete, or loses value to the owner from natural causes. Basic Requirements for Depreciation
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Copyright Oxford University Press 2009 Tangible property: can be seen, touched, and felt. Real property: land, buildings, and things growing on, built upon, constructed on, or attached to the land Personal property: equipment, furnishings, vehicles, office machinery, and anything that is tangible excluding real property Intangible property: has value but cannot be directly seen or touched, examples include patents, copyrights, and trademarks, trade names, and franchises. Types of Property
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Almost all tangible property can be depreciated except land, factory inventory, containers considered as inventory, and leased property. Tangible property used in both business and personal activities can be depreciated, but only in proportion to the use for business purposes. Intangible property can generally be depreciated.
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This note was uploaded on 10/19/2011 for the course ENGINEERIN 110 taught by Professor King during the Spring '11 term at UCLA.

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Chapter_11_Depreciation - Chapter 11 Depreciation Copyright...

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