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T10 notes - BUSI1002 Chapter 10: Plant Assets, Natural...

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BUSI1002 By 1 Chapter 10: Plant Assets, Natural Resources and Intangibles 1. Cost determination - Include all normal and reasonable expenditures to get the asset in place and ready for its intended use Example: Land: solicitor’s fee, land registration charge, agency fee… Eq uipment: transportation cost, custom duty, pre operation testing … Separation of value -- basket purchase 2. Methods of depreciation A. Straight line (Chapter 3) = (Cost - residual value) / useful life B. Unit-of-production = (Cost - residual value) / total units of production C. Declining balance = N % x 1 / useful life (a slightly modified reducing balance method) Double entry for depreciation Dr. Depreciation Cr. Accumulated depreciation NOTE on calculating depreciation: if the question does not expressly state the depreciation policy and provides you with details of date of purchases, partial depreciation is recommended. 3. Changes of depreciation estimates and depreciation policy (HKAS 8) Change of depreciation estimate: NO RESTROSPECTIVE adjustment needed Change of accounting policy: RETROSPECTIVE adjustment 4. Capital and revenue expenditure Useful test: expand useful life / capacity / money earning power … Repairs = revenue expenditure; Improvement = capital expenditure 5. Disposal of fixed assets Step 1: Find the net book value (carrying amount) = Cost accumulated depreciation Step 2: Compare with the net book value and the selling price (NBV < SP: gain, NBV = SP: nil, NBV > SP: loss) Journal entries 1. Update the depreciation / accumulated depreciation (if necessary) 2. Remove assets (Cr. Asset) 3. Remove accumulated depreciation (Dr. Accumulated depreciation) 4. Record considerations (Dr. Cash / Bank / AR) 5. Record gain or loss (Cr. Gain Dr. Loss) 6. Natural resources (similar to straight line method based on unit of production) 7. Intangible asset List of intangible asset (accumulated amortization)
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This note was uploaded on 11/22/2011 for the course BUSI 1002 taught by Professor Liu during the Fall '10 term at HKU.

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T10 notes - BUSI1002 Chapter 10: Plant Assets, Natural...

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