ch11 student - Chapter 11: Depreciation, Impairments, and...

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Unformatted text preview: Chapter 11: Depreciation, Impairments, and Depletion Depreciation Factors involved Methods of depreciation Special methods Special issues Impairments Depletion Presentation and Analysis Recognizing impairments Measuring Impairments Restoration of loss Assets to be disposed of Presentation Analysis Establishing a base Write-off of resource cost Estimating reserves Liquidating dividends Continuing controversy Depreciation, Impairments, and Depletion Allocating costs of long-term assets: u Fixed assets = Depreciation expense u Intangibles = Amortization expense u Natural resources = Depletion expense Depreciation is the accounting process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset. Depreciation - Method of Cost Allocation LO 1 Explain the concept of depreciation. Depreciation - Method of Cost Allocation LO 2 Identify the factors involved in the depreciation process. Three basic questions: Factors Involved in the Depreciation Process (1) What depreciable base is to be used? (2) What is the assets useful life? (3) What method of cost allocation is best? Depreciation - Method of Cost Allocation LO 2 Identify the factors involved in the depreciation process. Depreciable Base Factors Involved in the Depreciation Process Illustration 11-1 Depreciation - Method of Cost Allocation LO 2 Identify the factors involved in the depreciation process. Estimation of Service Lifes Factors Involved in the Depreciation Process u Service life often differs from physical life. u Companies retire assets for two reasons: 1. Physical factors (casualty or expiration of physical life). 2. Economic factors (inadequacy, supersession, and obsolescence). Depreciation - Method of Cost Allocation LO 3 Compare activity, straight-line, and decreasing- charge methods of depreciation. The profession requires the method employed be systematic and rational. Examples include: Methods of Depreciation (1) Activity method (units of use or production). (2) Straight-line method. (3) Sum-of-the-years-digits. (4) Declining-balance method. (5) Group and composite methods. (6) Hybrid or combination methods. Accelerated methods Special methods Depreciation - Method of Cost Allocation LO 3 Activity Method Illustration 11-2 Illustration: If Stanley uses the crane for 4,000 hours the first year, the depreciation charge is: Stanley Coal Mines Facts Illustration 11-3 Depreciation - Method of Cost Allocation Straight-Line Method Illustration: Stanley computes depreciation as follows: Stanley Coal Mines Facts Illustration 11-4 Illustration 11-2 LO 3 Depreciation - Method of Cost Allocation Decreasing-Charge Methods Stanley Coal Mines Facts Sum-of-the-Years-Digits. Each fraction uses the sum of the years as a denominator (5 + 4 + 3 + 2 + 1 = 15). The numerator is the number of years of estimated life remaining as of the beginning of the year....
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This note was uploaded on 03/01/2012 for the course FIN 3154 taught by Professor Jceasterwood during the Spring '08 term at Virginia Tech.

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ch11 student - Chapter 11: Depreciation, Impairments, and...

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