Chapter 11 slidesV2

Chapter 11 slidesV2 - PP&E, Intangible Assets:...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
PP&E, Intangible Assets: Utilization and Impairment Depreciation, Depletion, etc. Anthony Meder, Ph.D. Nov. 17 and 22
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
What we will learn Time and Activity based Depletion of natural resources Amortization of intangibles Impairment tests and charges Cost allocation for groups of assets Handling additional costs Accounting for changes and errors in
Background image of page 2
Cost allocation—Depreciation, Depletion and Amortization Cost allocation—not a valuation, but allocating costs. Depreciation—cost allocation for Tangible Depletion—cost allocation for natural resources Amortization—cost allocation for intangibles We have figured our costs for the assets (Chapter 10). How do we allocate these costs?
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Measuring Cost Allocation Three factors Service life—how long will the asset be useful Allocation base—value of usefulness to be consumed by the firm (i.e.: cost) Allocation method—pattern over which the usefulness will be consumed Straight line, sum of years digits, etc. Once we have these three items, we can derive our allocations
Background image of page 4
Service Life (aka Useful Life) Amount of use firm expects to get from the asset To this point, we have used years Could be some production base (units made) Physical life is an upper bound Max service life = physical life But, service could be less. Maybe a mine has 4 million tons of minerals, but we can only get 2 million tons with current methods.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Allocation Base What value are we allocating? To date, we have used cost. Implicit assumption: $0 salvage (residual) value Residual value—what is the asset worth even after we have ‘used it up’. Could be ‘scrap price’ (what we could sell for as scrap) Could be disposal cost Why do we use 0 residual? Typically, difficult to estimate with any
Background image of page 6
Allocation Method Method should be Systematic --Rational Reflective of the pattern of use Two main types Time-based allocates over passage of time Some depreciation methods Intangible amortization is time-based Activity-based Some depreciation methods
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 26

Chapter 11 slidesV2 - PP&E, Intangible Assets:...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online