43 during the useful life of a long lived asset the

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Unformatted text preview: he asset was in use during the year. 4.3 During the useful life of a long-lived asset, the annual depreciation needs to be revised if there are changes to any of: capital expenditures added to the value of the asset; impairments in the market value; changes in the useful life or residual value. These revisions are only made for current and future years, not retroactively. 5. Expenditures During Useful Life 5.1 Ordinary repairs are expenditures incurred to maintain the operating efficiency and expected life of the asset. These operating expenditures are usually small amounts that occur frequently throughout service life and are debited to expense accounts as incurred. These expenditures do not add to the value of the asset. 5.2 Additions and improvements are expenditures incurred to increase the operating efficiency, productive capacity, or expected useful life of the asset. These expenditures, called capital expenditures are usually material in amount, occur infrequently during the period of ownership, and are debited to the appropriate capital asset account. These expenditures add to the value of the asset. 6. Impairments 6.1 If the market value of an asset falls far below its carrying amount and is not expected to recover (i.e. the decline in value is permanent), an impairment loss has been incurred. An entry is required to record this permanent loss in value as follows: DR Loss on Impairment CR Accumulated Depreciation - asset 7. Property, Plant and Equipment Disposals Long-lived assets may be disposed of by (a) retirement, (b) sale, or (c) exchange. 7.1 Disposal by retirement: the long-lived asset is scrapped or discarded. 7.1.1 Update any unrecorded depreciation up to the retirement date. BCIT – FMGT 1152 – Accounting for the Manager 6 of 8 7.1.2 Eliminate the book value of the long-lived asset at the date of disposal by debiting Accumulated Depreciation and crediting the asset account for its cost. This will bring the balance in both accounts to $0. 7.1.3 If a long-lived asset is retired before it is fully depreciated and no residual value is received, a loss on disposal occurs. 7.2 Disposal by sale: the long-lived asset is sold to another party. 7.2.1 Update any unrecorded depreciation up to the date of disposition. 7.2.2 Eliminate the carrying amount of the long-lived asset at the date of sale by debiting Accumulated Depreciation and crediting the asset account for its cost. 7.2.3 Debit Cash to record the cash proceeds from the sale. 7.2.4 Calculate gain or loss. 7.2.4.1 If the cash proceeds are greater than the carrying amount, recognize a gain by crediting...
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