Ch11s - Chapter 11 Depreciation, Impairments, and Depletion...

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Depreciation, Impairments, and Depletion Chapter 11
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Chapter 11: Key Concepts Depreciation Discuss concepts and factors that determine depreciation. Methods. Special Depreciation Considerations. Impairments Discuss what events might prompt impairment tests. Calculation of Impairment Losses Held for Use vs. Held for Disposal Disclosures 2 Accounting 301A-Eiler
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Depreciation – Method to Allocate Cost Definition of Depreciation: Accounting process of allocating cost of tangible assets in a systematic and rational manner as an expense across periods expected to benefit from the use of the asset. Can be correlated with, but does not measure the value of an asset. What is the underlying principle? __Matching____ Other cost allocation processes? Depletion and Amortization . Depletion – Natural Resources (e.g., Timber, Oil, Coal). Amortization – Intangible Asset (e.g., Patents, 3 Accounting 301A-Eiler
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Key Factors in Determining Depreciation Accounting 301A-Eiler 4 Depreciable Basis Goes back to Chapter 10 – What is “cost”? Also need to factor in Salvage Value. Useful Life Method Straight Line Results in same rate per year. Units of Production / Units of Use Results in same rate per unit. Accelerated Depreciation Methods Sum-of-the-years’ Digits or Double Declining Balance Results in more depreciation in earlier years. Special Depreciation Methods Group & Composite / Hybrid or Combination Methods
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Estimating Useful Life of an Asset Accounting 301A-Eiler 5 Useful life generally different than physical life. Companies retire assets for two reasons: 1. Physical factors Casualty or expiration of physical life. 2. Economic factors Inadequacy Assets with insufficient capacity. Supersession Assets that are replaced by more economical or efficient assets. Obsolescence Assets that become obsolete (not inadequate or superseded).
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Special Depreciation Considerations Accounting 301A-Eiler 6 Partial Year (usually in year of purchase and year of disposal). Replacement of Assets Revisions in Rates
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Special Depreciation Considerations (cont.) Accounting 301A-Eiler 7 Partial Year (usually in year of purchase and year of disposal). Calculate Depreciation Expense for a full
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This note was uploaded on 11/08/2011 for the course ECON 102 taught by Professor Smith during the Spring '11 term at Saddleback.

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Ch11s - Chapter 11 Depreciation, Impairments, and Depletion...

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