321 Final Study Guide

321 Final Study Guide - Estimated service life Advantages...

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CH. 11 I. Depreciable Concepts: Depreciable Base = Original Cost – Salvage Value Useful Life – estimated length of use of an asset for a company Carrying Value – original cost of the asset less any depreciation, amortization or impairment costs made against the asset (“Book Value”) Salvage Value – the estimated amount that a company will receive when it sells the asset or removes it from service Amortization – the expiration of intangible assets (ex. patents or copyrights) II. Depreciation Methods: a. Activity – assumes that depreciation is a function of use or productivity, instead of passage of time Cost less salvage X Hrs. this year Total Estimated Hrs. b. Straight -line – considers depreciation a function of time rather than a function of usage Cost less salvage
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Unformatted text preview: Estimated service life Advantages 1) Simple 2) Most conceptually appropriate Disadv antages 2 tenuous assumptions: 1) The assets economic usefulness is the same each year 2) The repair and maintenance expense is essentially the same each period c. Decreasing-Charge Methods provide a higher depreciation cost in the earlier years and lower charges in later periods (Accelerated Depreciation Methods) c.i. Sum-of-the-years digits results in a decreasing depreciation charge based on a decreasing fraction of depreciable cost (original cost salvage value) c.ii. Declining-Balance utilizes a depreciation rate that is some multiple of the straight-line method d. Group/Composite Method...
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321 Final Study Guide - Estimated service life Advantages...

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