Assignment_6_-_Lecture_notes

Shows more depreciation in the early years more

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Shows more depreciation in the early years More accurately reflects the wearing out of vehicles, equipment, etc. Formula: Book value / estimated life * 2 = Depreciation expense for year Example 1 (full year): Cost of Fixed Asset: $5,000 Residual value: $500 Estimated life: 3 years Solution: Table: Year Cost Depreciation Expense Accumulated Depreciation Book Value 1 5,000 3,333 3,333 1,667 2 5,000 1,111 4,444 556 3 5,000 56 4,500 500** **Final book value is the same as the residual value. Never depreciate passed residual value
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Example 2 (partial year): Cost of Fixed Asset: $5,000 Residual value: $500 Estimated life: 3 years Placed in service: October 1 st Solution: First year: 5,000 / 3 * 2 = $3,333 whole year * 3/12 = $833 Table Year Cost Depreciation Expense Accumulated Depreciation Book Value 1 5,000 833 833 4,167 2 5,000 2,778 3,611 1,389 3 5,000 889 4,500 500** B. Unit-of-Production Depreciation based on number of units produced. Good for manufacturing equipment. Formula = (Cost – residual value)/estimated total units = depreciation per unit. Depreciation per unit * units produced in one year = depreciation expense for year Example1 (full year): Cost of Fixed Asset: $5,000 Residual value: $500 Estimated number of units: 9,000 Units in first year: 800 Units in second year: 1200 Table Year Cost Depreciation Expense Accumulated Depreciation Book Value 1 5,000 400 400 4,600 2 5,000 600 1,000 4,000 Example 2 (partial year): Partial year does not matter. Based on units made, not time used.
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Adjusting Entry to Record Depreciation: Dr Depreciation Expense $x,xxx Cr Accumulated Depreciation $x,xxx Intangible Assets Cannot be touched Some are amortized, not depreciated 1. Patents – Amortized over 20 years 2. Copyrights – Amortized over 70 years after the death 3. Trademarks – Not amortized, does not lose value 4. Goodwill – not amortized a. Only record when a business is sold b. Goodwill = Price paid – fair value of the business c. Pay more than value for: location, customer base, employees d. If goodwill becomes impaired (not worth the amount paid) it must be credited off of the books. Intangible - amortization Fixed assets – depreciation Natural resources - depletion
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