04-04-12Class22 EndCh11 begin Ch 16 dilutive secb

Depreciationhasbeenrecordedfor7yearsonastraightline

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Unformatted text preview: ly Not considered errors or extraordinary items Chapter 18-26 LO 4 Explain special depreciation methods. Change in Estimate Example Change in Estimate Example Arcadia HS, purchased equipment for $510,000 which was estimated to have a useful life of 10 years with a salvage value of $10,000 at the end of that time. Depreciation has been recorded for 7 years on a straight­line basis. In 2010 (year 8), it is determined that the total estimated life should be 15 years with a salvage value of $5,000 at the end of that time. Questions: What is the journal entry to correct the prior years’ depreciation? N No Calculate the depreciation expense for 2010.o Entry Required Required Chapter 18-27 LO 4 Explain special depreciation methods. Change in Estimate Example Change in Estimate Example Equipment cost Salvage value Depreciable base Useful life (original) Annual depreciation Fixed Assets: After 7 years $510,000 First, establish NBV at First, establish NBV at ­ 10,000 date of change in estimate. date of change in estimate. 500,000 10 years $ 50,000 x 7 years = $350,000 Balance Sheet (Dec. 31, 2009) Equipment Accumulated depreciation Net book value (NBV) Chapter 18-28 $510,000 350,000 $160,000 LO 4 Explain special depreciation methods. Change in Estimate Example Change in Estimate Example Net book value Salvage value (new) Depreciable base Useful life remaining Annual depreciation $160,000 5,000 155,000 8 years $ 19,375 After 7 years Depreciation Expense Depreciation Expense calculation for 2010. calculation for 2010. Journal entry for 2010 Depreciation expense 19,375 Accumulated depreciation Chapter 18-29 19,375 LO 4 Explain special depreciation methods. Impairments Impairments When the carrying amount of an asset is not recoverable, a company records a write­off referred to as an impairment. Events leading to an impairment: a. Decrease in the market value of an asset. b. Change in the manner in which an asset is used. c. Adverse change in legal factors or in the business climate. d. An accumulation of costs in excess of the amount originally expected to acquire or construct an asset. e. A projection or forecast that demonstrates continuing losses associated with an asset. Chapter 18-30 LO 5 Explain the accounting issues related to asset impairment. Impairments Impairments Measuring Impairments 1. Review events for possible impairment. 2. If the review indicates impairment, apply the recoverability test. If the sum of the expected future net cash flows from the long­lived asset is less than the carrying amount of the asset, an impairment has occurred. 3. Assuming an impairment, the impairment loss is the amount by which the carrying amount of the asset exceeds the fair value of the asset. The fair value is the market value or the present value of expected future net cash flows. Chapter 18-31 LO 5 Explain the accounting issues related to asset impairment. Impairments Impairments Illustration 11-16 Accounting for Impairments Chapter 18-32 LO 5 Explain the accounting issues relate...
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