C1 Chapter 08 - Chapter 8 Capital Assets Property Plant and...

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8-1 Chapter 8 Capital Assets: Property, Plant, and Equipment, Natural Resources, and Intangibles Financial Accounting 1 st Canadian ed. by PNCS-B
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8-2 Properties ( Note4 ) $ 16,688 Intangibles and other assets ( Note5 ) 929 Total $ 17,617 CN 2004 Balance Sheet (excerpt) Book Value At Cost
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8-3 Acquisition Cost of P,P&E All costs necessary to acquire asset and prepare for intended use Purchase Price - Discount Installation Costs Transportation Charges Duty
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8-4 Group Asset Purchases Allocate cost of lump-sum purchase based on fair market values Cost $100,000 $75,000 $25,000 Allocated Cost Land = $30,000 Building = $90,000 Fair Market Value 75% 25% % of Market Value
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8-5 Capitalization of Interest Interest can be included as part of the cost of an asset if: » company constructs asset over time, and » borrows money to finance construction
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8-6 Depreciation of P,P & E Match cost of assets with periods benefited 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 28 29 30 31 27 Straight-Line Units of Production Accelerated Methods via
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8-7 $9,000 3-year life Straight-Line Method Allocates cost of asset evenly over its useful life $3,000 Year 1 $3,000 Year 2 $3,000 Year 3
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8-8 Units-of-Production Method Allocate asset cost based on number of units produced over its useful life depreciation = per unit
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8-9 Double-Declining-Balance Method Double the straight-line rate on a declining balance (book value) Accelerated method - higher amount of depreciation in early years Straight-line Rate
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8-10 Depreciation Example On January 1, Kemp Company purchases a machine for $20,000. The life of the machine is estimated at five years, after which it is expected to be sold for $2,000.
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8-11 Depreciation Example Calculate Kemp's depreciation of the machine for years 1 - 5 using the straight- line, units-of-production and double- declining-balance depreciation methods.
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