Chapter 8

# Chapter 8 - Chapter 8 Long Term Assets Plant Assets...

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Chapter 8 Long Term Assets Plant Assets: - Tangible assets that are used actively in the operations of the entity - Decline in asset value over its useful life Acquisition 1. Compute cost Use 2. Allocate cost to periods benefited 3. Account for subsequent expenditures Disposal 4. Record disposal Land is not a depreciable asset - Land improvements are Lump-Sum Asset Purchase: - The total cost of a combined purchase of land and building is separated on the basis of their market values EX: Appraised Value’s - Land= \$50,000 Building= \$100,000 Equipment= \$75,000 o Sum= \$225,000 % Of Value o Land= 22%, Building=45%, Equipment= 33% PURCHASE PRICE= \$150,000

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Apportioned Cost - Land= 150,000 x .22= 33,000 - Building= 150,000 x .45= 67,500 - Equipment= 150,000 x .33= 49,500 Depreciation: - Process of allocating the cost of a plant asset to expense in the accounting period - The calculation of depreciation requires three amounts for each asset: o Cost, salvage value, useful life Deprecation Methods: - Straight Line Method o Depreciation expense for period= Cost – Salvage Value/Useful Life o Depreciation expense per year= 50,000-5,000/5= \$9,000 Debit: Depreciation Expense \$9000 Credit: Accumulated Depreciation Equipment \$9000 Year Depreciation Expense Acc. Depreciation Book Value 50,000 2011 9,000 9,000 41,000 2012 9,000 9,000 32,000 2013 9,000 9,000 23,000 2014 9,000 9,000 14,000 2015 9,000 9,000 5,000 Depreciation Rate = (100% / 5 years) = 20% per year - Units of Production Method o Step 1: Depreciation Per Unit = Cost – Salvage Value/Total Units of Production
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Chapter 8 - Chapter 8 Long Term Assets Plant Assets...

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