Chapter9StudyObjectives

Chapter9StudyObjectives - 1 Describe how the cost principle...

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1   Describe how the cost principle applies to plant assets. The cost of plant assets includes all expenditures necessary to acquire the asset and make it ready for its intended use. Cost is measured by the cash or cash equivalent price paid. 2   Explain the concept of depreciation. Depreciation is the allocation of the cost of a plant asset to expense over its useful (service) life in a rational and systematic manner. Depreciation is not a process of valuation, nor is it a process that results in an accumulation of cash. 3   Compute periodic depreciation using different methods. Three depreciation methods are: Effect on Annual Depreciation Constant amount Depreciable cost ÷ Useful life (in years) Varying amount Depreciation cost per unit × Units of activity during the year Decreasing amount Book value at beginning of year × Declining- balance rate 4   Describe the procedure for revising periodic depreciation. Companies make revisions of periodic depreciation in present and future periods, not retroactively. They determine the new annual depreciation by
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Chapter9StudyObjectives - 1 Describe how the cost principle...

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