Ch+09+Edited

Contractual agreement in which the owner of an asset

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ing 1. Reduced risk of obsolescence. 2. Little or no down payment. 3. Shared tax advantages. 4. Assets and liabilities not reported. Capital lease - lessees show the asset and liability on the balance sheet. Chapter 9-15 SO 1 Describe how the cost principle applies to plant assets. Chapter 9-16 Accounting for Plant Assets Accounting for Plant Assets Depreciation Process of allocating to expense the cost of a plant asset over its useful (service) life in a rational and systematic manner. Applies to land improvements, buildings, and equipment, not land. Chapter 9-17 Process of cost allocation, not asset valuation. Depreciable, because the revenue-producing ability of asset will decline over the asset’s useful life. SO 2 Explain the concept of depreciation. Accounting for Plant Assets Accounting for Plant Assets Factors in Computing Depreciation Illustration 9-6 Cost Chapter 9-18 Useful Life Salvage Value SO 2 Explain the concept of depreciation. Accounting for Plant Assets Accounting for Plant Assets Depreciation Methods Management selects the method it believes best measures an asset’s contribution to revenue over its useful life. Examples include: (1) Straight-line method. (2) Declining-balance method. (3) Units-of-activity method. Illustration 9-7 Use of depreciation methods in major U.S. companies Chapter 9-19 SO 3 Accounting for Plant Assets Accounting for Plant Assets Illustration: Bill’s Pizzas purchased a small delivery truck on January 1, 2012. Required: Compute depreciation using the following. (a) Straight-Line. (b) Units-of-Activity. (c) Declining Balance. Chapter 9-20 SO 3 Compute periodic depreciation using the straight-line method, SO and contrast its expense pattern with those of other methods. and Accounting for Plant Assets Accounting for Plant Assets Straight-Line Expense is same amount for each year. Depreciable cost = Cost less salvage value. Illustration 9-8 Chapter 9-21 SO 3 Compute periodic depreciation using the straight-line method, SO and contrast its expense pattern with those of other methods. and Accounting for Plant Assets Accounting for Plant Assets Illustration: (Straight-Line Method) Illustration 9-9 Year Depreciable Cost 2012 $ 12,000 2013 12,000 20 2,400 4,800 8,200 2014 12,000 20 2,400 7,200 5,800 2015 12,000 20 2,400 9,600 3,400 2016 12,000 20 2,400 12,000 1,000 2012 Journal Entry Chapter 9-22 x Rate = 20% Annual Expense Accum. Deprec. Book Value $ 2,400 $ 2,400 $ 10,600 Depreciation expense Accumulated depreciation 2,400 2,400 SO 3 Compute periodic depreciation using the straight-line method, SO and contrast its expense pattern with those of other methods. and Partial Year Accounting for Plant Assets Accounting for Plant Assets Accounting Illustration: (Straight-Line Method) Assume the delivery truck was purchased on April 1, 2010. Year Depreciable Cost 2012 $ Rat e 12, 000 x 20% = 2 013 12, 000 x 20% = 2 014 12, 000 x 2 015 12, 000 2 016 2 017 Annual Expense $ 2, 400 Current Year Expense Part ial Year x 1, 800 $ 1 , 800...
View Full Document

Ask a homework question - tutors are online