C1 Chapter 08

C1 Chapter 08 - 8-1Chapter 8Capital Assets:Property Plant...

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Unformatted text preview: 8-1Chapter 8Capital Assets:Property, Plant, and Equipment, Natural Resources,and IntangiblesFinancial Accounting 1stCanadian ed. by PNCS-B8-2Properties (Note4)$ 16,688Intangibles and other assets (Note5) 929Total$ 17,617CN 2004 Balance Sheet (excerpt)Book ValueAt Cost8-3Acquisition Cost of P,P&E●All costs necessary to acquire asset and prepare for intended usePurchasePrice-DiscountInstallationCostsTransportation ChargesDuty 8-4Group Asset PurchasesAllocate cost of lump-sum purchase based on fair market valuesCost$100,000$75,000$25,000AllocatedCostLand = $30,000Building = $90,000Fair MarketValue75%25%% ofMarketValue8-5Capitalization 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 construction8-6Depreciation of P,P & EMatch cost ofassetswith periodsbenefited12345678910111213141516171819202122232425262829303127Straight-LineUnits ofProductionAcceleratedMethodsvia8-7$9,0003-year lifeStraight-Line Method●Allocates cost of asset evenly over its useful life$3,000Year 1$3,000Year 2$3,000Year 38-8Units-of-Production Method●Allocate asset cost based on number of units produced over its useful lifedepreciation =per unit8-9Double-Declining-Balance Method●Double the straight-line rate on a declining balance (book value)●Accelerated method - higher amount of depreciation in early yearsStraight-lineRate8-10Depreciation ExampleOn 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 $2,000.8-11Depreciation ExampleCalculate Kemp's depreciation of the machine for years 1 - 5 using the straight-line, units-of-production and double-declining-balance depreciation methods. $20,000 cost - $2,000 residual value = $18,000 to be depreciated8-12Straight-Line DepreciationDepreciation = Cost - Residual ValueLife= $20,000 - $2,0005 years= $3,600$18,0005-year life$3,600Year 1$3,600Year 2$3,600Year 3$3,600Year 4$3,600Year 58-13Units-of-Production Depreciation●Kemp’s estimated machine production:...
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This note was uploaded on 10/19/2011 for the course ACCT 2242 taught by Professor Cumming during the Spring '11 term at Dalhousie.

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C1 Chapter 08 - 8-1Chapter 8Capital Assets:Property Plant...

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