Lecture 8 (Part 1) Depreciation

Size: px
Start display at page:

Download "Lecture 8 (Part 1) Depreciation"

Transcription

1 Seg2510 Management Principles for Engineering Managers Lecture 8 (Part 1) Depreciation Department of Systems Engineering and Engineering Management The Chinese University of Hong Kong 1

2 Depreciation Depreciation the decrease in value of physical properties with the passage of time and use. Engineers must be able to assess how the practice of depreciating fixed assets influences the investment value of a given project. 2

3 Accounting for Depreciation The costs of these fixed assets must be recorded as expenses on a firm's balance sheet and income statement. Unlike costs such as maintenance, material, and labor, the costs of fixed assets are not treated simply as expenses to be accounted for in the year that they are acquired. These assets are capitalized: their costs are distributed by subtracting them as expenses from gross income -- one part at a time over a number of periods. 3

4 Accounting for Depreciation The process of depreciating an asset requires preliminary determinations: 1. What is the cost of the asset? 2. What is the asset's value at the end of its useful life? 3. What is the depreciable life of the asset? 4. What method of depreciation do we choose? 4

5 Depreciable Property For the U.S. tax law, any depreciable property has the following characteristics: 1. It must be used in business or held for the production of income. 2. It must have a definite service life, which must be longer than one year. 3. It must be something that wears out, decays, gets used up, becomes obsolete, or loses value from natural causes. Depreciable property includes buildings, machinery, equipment, vehicles, and some intangible properties. Inventories are not depreciable property, because they are held primarily for sale to customers. If an asset has no definite service life, the asset cannot be depreciated. E.g. Land 5

6 Cost Basis The cost basis of an asset represents the total cost that is claimed as an expense over an asset's life, i.e., the sum of the annual depreciation expenses. It includes the actual cost of an asset and all incidental expenses, such as freight, site preparation, and installation. An asset's cost basis is used in calculating the gain or loss to the firm if the asset is ever sold or salvaged. 6

7 Example Rockford Corporation purchased an automatic hole-punching machine priced at $62,500. The vendor's invoice included a sales tax of $3,263. Lanier also paid the inbound transportation charges of $725 on the new machine, as well as a labor cost of $2,150 to install the machine in the factory. In addition, Lanier had to prepare the site before installation, at a cost of $3,500. Determine the cost basis for the new machine for depreciation purposes. 7

8 Solution The cost of the machine that is applicable for depreciation is computed as follows: Cost of new hole-punching machine Freight Installation labor Site preparation Cost of machine (cost basis) $62,500 $725 $2,150 $3,500 $68,875 8

9 Useful Life and Salvage Value How long will an asset be useful to the company? Determining an asset s depreciable life, i.e., the number of years over which the asset is to be depreciated. The salvage value of an asset is an asset's estimated value at the end of its life. The amount eventually recovered through sale, trade-in, or salvage. 9

10 Depreciation Methods Most firms calculate depreciation in two different ways, depending on whether the calculation is: 1. intended for financial reports (book depreciation method), such as for the balance sheet or income statement 2. intended for the Internal Revenue Service (IRS) for the purpose of calculating taxes (tax depreciation method). The book depreciation method enables firms to report depreciation to stockholders and other significant outsiders based on the matching concept. Actual loss in value of the assets is generally reflected. The tax depreciation method allows firms to benefit from the tax advantages of depreciating assets more quickly. 10

11 Book Depreciation Methods Three different methods can be used to calculate the periodic depreciation allowances for financial reporting: (1) the straight-line method, (2) the declining-balance method, and (3) the unit-of-production method. 11

12 Notations We will use the following notations: N = Depreciable life of the asset in year I = Investment cost S = Salvage (market) value at the end of the depreciable life D k = Depreciation deduction in Year k B k = Book value at the end of Year k Helps you to compute the depreciation deduction in next year (d k+1 ). 12

13 Straight-Line Method The straight-tine method (SL) of depreciation interprets a fixed asset as an asset that provides its services in a uniform fashion. The depreciation amount is constant The depreciation rate is 1/N, where N is the depreciable life. ( I S) D k = depreciation rate ( I S) = N 13

14 Example A new electric saw for cutting small pieces of lumber in a furniture manufacturing plant has a cost of $4,000 and a 10-year depreciable life. The salvage value is 0. What is the annual depreciation amount using SL method? Solution: D k ( I S) = = L = N $400 14

15 Example Consider the following data on an automobile: Cost basis of the asset (I) = $10,000; Useful life (N) = 5 years: Estimated salvage value (S) = $ Compute the annual depreciation allowances and the resulting book values. using the straight-line depreciation method. 15

16 Solution The SL depreciation rate = 1/5=20% The annual depreciation charge is D n = ( 0.20)($10,000 $2,000) = $1,600. The asset would have the following book values during its useful life, where B n represents the book value before the depreciation charge for year n. B = I D + D + D n ( Dn ). 16

17 Solution 17

18 Declining-Balance Method The stream of services provided by a fixed asset may decrease over time. The depreciation amount is varied, but the depreciation ratio is a fixed percentage. Depreciation Rate The declining-balance method of calculating depreciation allocates a fixed fraction of the beginning book balance each year. The fraction is obtained using the straight-line depreciation rate (1/N) as a basis: = (1/N)(multiplier). Typical multipliers are 1.5 (150% DB) and 2.0 (200% DDB (doubledeclining-balance)) D As N increases, decreases depreciation is highest in the first year and then decreases over the asset's depreciable life. k = αi(1 α) k 1 18

19 Example Consider the following accounting information for a computer system: Cost basis of the asset (I) = $10,000; Useful life (N) = 5 years; Estimated salvage value (S) = $ Compute the annual depreciation allowances and the resulting book values. using the double-declining-balance depreciation method. 19

20 Solution The declining-balance rate is 1 (2) = 40%. 5 Tax law does not permit us to depreciate assets below their salvage value. End of Year 1 0.4($10,000) = $4,000 $10,000 - $4,000 = $6, ($6,000) = $2,400 $6,000 - $2,400 = $3, ($3,600) = $1,440 $3,600 - $1,440 = $2, ($2,160) = $864 $160 $2,160 - $160 = $2, $2,000 - $0 = $2,000 Total = $8,000 20

21 Declining-Balance Method Switching Policy When B n > S, we have not depreciated the entire cost of the asset B N will never reaches 0 with DB method. thus have not taken full advantage of depreciation's tax-deferring benefits. By switching from DB depreciation to SL depreciation whenever SL depreciation results in larger depreciation charges and a more rapid reduction in the book value of the asset. The switching rule is as follows: if DB depreciation in any year is less than (or equal to) the depreciation amount calculated by SL depreciation based on the remaining years, switch to and remain with the SL method for the duration of the asset's depreciable life. The straight-line depreciation in any year n is calculated by: Book value at beginning of year n salvage value D n =. Remaining useful life at beginning of year n 21

22 Declining-Balance Method Switching Policy Book Value ($) SL Method DB Method DB switchover SL 0 N Year 22

23 Example Suppose the asset given in Example 8.3 has a zero salvage value instead of $2,000, i.e.: Cost basis of the asset (I) = $10,000; Useful life (N) = 5 years; Salvage value (S) = $0; = (1/5)(2) = 40%. Determine the optimal time to switch from DB to SL depreciation and the resulting depreciation schedule. 23

24 Solution TABLE 8.2 Switching Policy from DDB to SL depreciation S = 0. (a) Without switching (b) With switching to SL depreciation n Depreciation Book Value n Depreciation Book Value 1 $10,000(0.4) = $4,000 $6,000 1 $4,000 $6,000 2 $6,000(0.4) = $2,400 $3,600 2 $6,000/4 = $1,500 < $2,400 $3,600 3 $3,600(0.4) = $1,440 $2,160 3 $3,600/3 = $1,200 < $1,440 $2,160 4 $2,160(0.4) = $864 $1,296 4 $2,160/2 = $1,080 > $864 $1,080 5 $1,296(0.4) = $518 $778 5 $1,080/1 = $1,080 > $518 $0 Note: If we don't switch methods, we do not depreciate the entire cost of the asset and thus do not take full advantage of depreciation's tax-deferrring benefits. 24

25 Units-of-Production Method Viewing the asset as a bundle of service units rather than as a single units The depreciation in any year is given by D n Service = units consumed during Total service units year n ( I S) Depreciation charges are made proportional to the ratio of actual output to the total expected output. Advantages As depreciation varies with production volume, the method gives a more accurate picture of machine usage. Disadvantage the collection of data on machine use and the accounting methods are somewhat tedious. 25

26 Example A truck for hauling coal has an estimated net cost of $55,000 and is expected to give service for 250,000 miles, resulting in a $5,000 salvage value. Compute the allowed depreciation amount for truck usage of 30,000 miles. Solution: The depreciation expense in a year in which the truck traveled 30,000 miles would be 30,000 miles 250,000 miles ($55,000 $5,000) = 3 25 ($50,000) = $6,

27 References Chan S. Park, Fundamentals of Engineering Economics. Prentice Hall Lecture 7:Depreciation, by Gabriel Fung

Lecture 8 (Part 2) Depreciation

Lecture 8 (Part 2) Depreciation Seg2510 Management Principles for Engineering Managers Lecture 8 (Part 2) Depreciation Department of Systems Engineering and Engineering Management The Chinese University of Hong Kong 1 Part I Review of

More information

Chapter 11 Depreciation. Depreciations: Straight Line Sum of Years Digits Declining Balance

Chapter 11 Depreciation. Depreciations: Straight Line Sum of Years Digits Declining Balance Chapter 11 Depreciation Depreciations: Straight Line Sum of Years Digits Declining Balance 1 Depreciation is important because it affects the taxes that firms pay. The taxable income is (Income expenses).

More information

CHAPTER 7. Depreciation And Income Taxes. Created By : Eng.Maysa Gharaybeh

CHAPTER 7. Depreciation And Income Taxes. Created By : Eng.Maysa Gharaybeh CHAPTER 7 Depreciation And Income Taxes Created By : Eng.Maysa Gharaybeh Depreciation Decrease in value of physical properties with passage of time and use. More specifically: Accounting concept establishing

More information

Copyright 2009 The Learning House, Inc. Fixed and Intangible Assets Page 1 of 13

Copyright 2009 The Learning House, Inc. Fixed and Intangible Assets Page 1 of 13 Copyright 2009 The Learning House, Inc. Fixed and Intangible Assets Page 1 of 13 Introduction This lesson focuses on the long-term assets used to operate a company. These assets can be grouped into fixed

More information

Chapter 7: Decpreciation and Income Taxes

Chapter 7: Decpreciation and Income Taxes Chapter 7: Decpreciation and Income Taxes Tsui-Ping Chung 1 The goal The objective of Chapter 7 is to explain how depreciation affects income taxes, and how income taxes affect economic decision making.

More information

The Cost of Property, Plant, Equipment

The Cost of Property, Plant, Equipment 1 The Cost of Property, Plant, Equipment The cost of property, plant, and equipment includes the purchase price of the asset and all expenditures necessary to prepare the asset for its intended use. Land.

More information

The cost of this asset includes the purchase price, plus any taxes, commissions, and other amounts paid to make the asset ready for use.

The cost of this asset includes the purchase price, plus any taxes, commissions, and other amounts paid to make the asset ready for use. Accounting Fundamentals Lesson 7 7.0 Long-Term Assets Plant Assets, are long-lived assets that are tangible. The cost of this asset includes the purchase price, plus any taxes, commissions, and other amounts

More information

S ection 7 DEPRECIATION UNDER FEDERAL INCOME TAX DEPRECIATION RULES

S ection 7 DEPRECIATION UNDER FEDERAL INCOME TAX DEPRECIATION RULES S ection 7 UNDER FEDERAL INCOME TAX RULES Important: This section explains how to depreciate for tax purposes assets purchased in 2000 or thereafter. Prior to 2000, there were many changes in tax depreciation

More information

Accounting for Plant Assets and Depreciation

Accounting for Plant Assets and Depreciation Ch16 Accounting for Plant Assets and Depreciation 1 Understanding PPE Acquisition of PPE (cost) Depreciation of PPE Revenue expenditure vs. capital expenditure Disposition of PPE (sale, trade, and discard)

More information

ILLUSTRATION 11-1 PATTERNS OF BOOK VALUE OVER LIFE OF ASSET

ILLUSTRATION 11-1 PATTERNS OF BOOK VALUE OVER LIFE OF ASSET ILLUSTRATION 11-1 PATTERNS OF BOOK VALUE OVER LIFE OF ASSET $ Cost of asset N PR: Book value activity methods Depreciable cost SL: Book value straight line Salvage value AC: Book value accelerated S E

More information

Fill-in-the-Blank Equations. Exercises

Fill-in-the-Blank Equations. Exercises Chapter 9 Long-Term Assets: Fixed and Intangible Study Guide Solutions 1. Residual value 2. Useful life 3. Straight-line rate 4. Total estimated units of activity 5. Straight-line rate 6. Depletion rate

More information

Fill-in-the-Blank Equations. Exercises

Fill-in-the-Blank Equations. Exercises Chapter 10 Fixed Assets and Intangible Assets Study Guide Solutions 1. Residual value 2. Useful life 3. Straight-line rate 4. Total units of output 5. Straight-line rate 6. Depletion rate 7. Fixed asset

More information

Depreciation. Dr. M. S. Memon. Mehran UET, Jamshoro, Pakistan. Department of Industrial Engineering and Management

Depreciation. Dr. M. S. Memon. Mehran UET, Jamshoro, Pakistan. Department of Industrial Engineering and Management Depreciation Dr. M. S. Memon Department of Industrial Engineering and Management Mehran UET, Jamshoro, Pakistan https://msmemon.wordpress.com/scmlab/ Introduction Any equipment which is purchased today

More information

Prepared by: Alex Socratous For My High School Students

Prepared by: Alex Socratous For My High School Students Prepared by: Alex Socratous For My High School Students CHAPTER 2 CAPITAL ASSETS DEPRECIATION CAPITAL ASSETS Capital assets are long-lived assets that are used in the operations of a business and are not

More information

You may have to use Form 4562 to figure and report your depreciation. See Which Forms To Use in chapter 3. Also see Publication 946.

You may have to use Form 4562 to figure and report your depreciation. See Which Forms To Use in chapter 3. Also see Publication 946. 1 of 10 11/29/2011 2:27 AM 2. Depreciation of Rental Property Table of Contents The Basics What Rental Property Can Be Depreciated? When Does Depreciation Begin and End? Depreciation Methods Basis of Depreciable

More information

Chapter 11 Investments in Noncurrent Operating Assets Utilization and Retirement

Chapter 11 Investments in Noncurrent Operating Assets Utilization and Retirement Chapter 11 Investments in Noncurrent Operating Assets Utilization and Retirement 1. The annual depreciation expense 2. The depletion of natural resources 3. The changes in estimates and methods in the

More information

Chapter 9: Long-Lived Assets and Cost Allocation

Chapter 9: Long-Lived Assets and Cost Allocation 1 Chapter 9: Long-Lived Assets and Cost Allocation 2 Capitalize vs Expense Revenue Expenditures Merely maintain a given level of services Should be Expensed Debit Expense Capital Expenditures Provide future

More information

CHAPTER 6 - Accounting for Long-Term Operational Assets

CHAPTER 6 - Accounting for Long-Term Operational Assets CHAPTER 6 - Accounting for Long-Term Operational Assets ANSWERS TO QUESTIONS 1. Long-term operational assets are those assets that are used by a business to generate revenue. In contrast, investments are

More information

Some Important Matters

Some Important Matters Long-lived Assets 15.501/516 Accounting Spring 2004 Professor S. Roychowdhury Sloan School of Management Massachusetts Institute of Technology March 15, 2004 1 Some Important Matters Problem sets 5&6 Due

More information

Long-lived, Revenue-producing Assets. Expected to Benefit Future Periods

Long-lived, Revenue-producing Assets. Expected to Benefit Future Periods Section 8 - Property, Plant, Equipment (Fixed Assets), and Depletable Resources Types of Assets Long-lived, Revenue-producing Assets 10-1 Expected to Benefit Future Periods Tangible Property, Plant, Equipment

More information

March 23, 2006 Anderson ECON 136A 11am Class FINAL EXAM v. 1 Name

March 23, 2006 Anderson ECON 136A 11am Class FINAL EXAM v. 1 Name March 23, 2006 Anderson ECON 136A 11am Class FINAL EXAM v. 1 Name YOU MUST WRITE YOUR NAME ON THIS EXAM AND TURN IT IN WITH YOUR SCANTRON AND BLUE-BOOK! Complete questions #1-25 on your scantron AND WRITE

More information

Chapter 08 - Long-Term Assets. Chapter Outline

Chapter 08 - Long-Term Assets. Chapter Outline Section 1 Plant Assets I. Cost Determination Plant assets are tangible assets used in a company's operations that have a useful life of more than one accounting period. Consistent with cost principle,

More information

CHAPTER 9. Plant Assets, Natural Resources, and Intangible Assets 6, 7, 8, 24, 25, 26 3, 4, 5, 6, 7 11, , 17, 18, 19, 20, 21, 22

CHAPTER 9. Plant Assets, Natural Resources, and Intangible Assets 6, 7, 8, 24, 25, 26 3, 4, 5, 6, 7 11, , 17, 18, 19, 20, 21, 22 CHAPTER 9 Plant Assets, Natural Resources, and Intangible Assets ASSIGNMENT CLASSIFICATION TABLE Study Objectives Questions Brief Exercises Do It! Exercises A Problems B Problems 1. Describe how the cost

More information

Before Class starts.(make sure your name is on all submissions)

Before Class starts.(make sure your name is on all submissions) Before Class starts.(make sure your name is on all submissions) Fourth Homework due 10/27(MW) or 10/28(TR) before class. No exceptions. Help session 10/26 1:00-3:30pm in GBS130 Fifth Homework due 11/3(MW)

More information

SOLUTIONS Learning Goal 19

SOLUTIONS Learning Goal 19 S1 Learning Goal 19 Multiple Choice 1. b 2. a 3. c 4. b However, the double-declining-balance method calculates the depreciation expense on the full asset cost until the final year of use. 5. d Total appraised

More information

5. The cost of buildings includes all necessary costs related to the purchase or construction

5. The cost of buildings includes all necessary costs related to the purchase or construction CHAPTER REVIEW Plant Assets 1. (S.O. 1) Plant assets are tangible resources that are used in the operations of a business and are not intended for sale to customers. Plant assets are subdivided into four

More information

SSAP 14 STATEMENT OF STANDARD ACCOUNTING PRACTICE 14 LEASES

SSAP 14 STATEMENT OF STANDARD ACCOUNTING PRACTICE 14 LEASES SSAP 14 STATEMENT OF STANDARD ACCOUNTING PRACTICE 14 LEASES (Issued October 1987; revised February 2000) The standards, which have been set in bold italic type, should be read in the context of the background

More information

SOLUTIONS. Learning Goal 28

SOLUTIONS. Learning Goal 28 S1 Learning Goal 28 Multiple Choice 1. b 2. a 3. c 4. b However, the double-declining-balance method calculates the depreciation expense on the full asset cost until the final year of use. 5. d Total appraised

More information

B EXERCISES E11-1B (Depreciation Computations SL, SYD, DDB) Instructions (a) (b) (c) E11-2B (Depreciation Conceptual Understanding) Instructions (a)

B EXERCISES E11-1B (Depreciation Computations SL, SYD, DDB) Instructions (a) (b) (c) E11-2B (Depreciation Conceptual Understanding) Instructions (a) B EXERCISES E11-1B (Depreciation Computations SL, SYD, DDB) Vaughn Company purchases equipment on January 1, Year 1, at a cost of $500,000. The asset is expected to have a service life of 10 years and

More information

Fundamental Accounting Principles, Volume 2

Fundamental Accounting Principles, Volume 2 SOLUTIONS MANUAL to accompany Fundamental Accounting Principles, Volume 2 15 th Canadian Edition by Larson/Jensen/Dieckmann Prepared by: Laura Dallas, Kwantlen Polytechnic University Technical checks by:

More information

Week11, Chap 8 Accounting 1A, Financial Accounting

Week11, Chap 8 Accounting 1A, Financial Accounting Week11, Chap 8 Accounting 1A, Financial Accounting Reporting and Interpreting Property, Plant, and Equipment;Natural Resources; and Intangibles Instructor: Michael Booth Understanding The Business Insufficient

More information

Accounting for tangible fixed Assets

Accounting for tangible fixed Assets Accounting for tangible fixed Assets Fixed assets are used (not consumed) in operations of a business provide benefits beyond the current accounting period Fixed assets are either acquired or self constructed

More information

Principles of Accounting II Chapter 21: Record and Communicate Operational Investments

Principles of Accounting II Chapter 21: Record and Communicate Operational Investments Principles of Accounting II Chapter 21: Record and Communicate Operational Investments Multiple Asset Purchases Allocate total purchase price among assets based on relative. Suppose you buy a building

More information

Plant design and economics (8)

Plant design and economics (8) Plant design and economics (8) Zahra Maghsoud ٢ DEPRECIATION (Ch. 9 Peters and Timmerhaus ) The reduction in value due to physical deterioration, technological advances, economic changes, or other factors

More information

Capital Assets. Apply cost principle to compute the cost of capital assets.

Capital Assets. Apply cost principle to compute the cost of capital assets. Capital Assets Objectives : Describe capital assets and issues accounting for them. Apply cost principle to compute the cost of capital assets. Amortization methods: straight-line, units-ofproduction,

More information

4/10/2012. Long-Lived Assets and Depreciation. Overview of Long-lived Assets. Learning Objectives (LO) Learning Objectives (LO)

4/10/2012. Long-Lived Assets and Depreciation. Overview of Long-lived Assets. Learning Objectives (LO) Learning Objectives (LO) Learning Objectives (LO) CHAPTER Long-Lived Assets and Depreciation 8 After studying this chapter, you should be able to 1. Distinguish a company s expenses from expenditures that it should capitalize

More information

Chapter 8. Accounting for Long-Term Assets

Chapter 8. Accounting for Long-Term Assets Chapter 8 Accounting for Long-Term Assets C 1 Plant Assets Tangible in Nature Actively Used in Operations Expected to Benefit Future Periods Called Property, Plant, & Equipment 8-2 C 1 Plant Assets Decline

More information

University of Nizwa / Dept. of Architecture / ARCH 506: Building Specification & Estimation / VALUATION / Ravishankar. KR / 5, January 2011.

University of Nizwa / Dept. of Architecture / ARCH 506: Building Specification & Estimation / VALUATION / Ravishankar. KR / 5, January 2011. Property Valuation Building Estimation and Costing Building Estimation and Costing Building Estimation and Costing is a vital part of Civil Engineering. No project can begin without the total Building

More information

The Cost Principle. Plant Assets. Intangible Assets. Natural Resources. Depreciation. Amortization. Depletion. Chapter 9

The Cost Principle. Plant Assets. Intangible Assets. Natural Resources. Depreciation. Amortization. Depletion. Chapter 9 Plant Assets Natural Resources Intangible Assets Depreciation Depletion Amortization Chapter 9 2 Held for use in business Full cost includes several expenditures Last several years Can be sold or traded

More information

Supplemental Instruction Handouts Financial Accounting Chapter 9: Property, Plant and Equipment and Intangibles Answer Key

Supplemental Instruction Handouts Financial Accounting Chapter 9: Property, Plant and Equipment and Intangibles Answer Key Supplemental Instruction Handouts Financial Accounting Chapter 9: Property, Plant and Equipment and Intangibles Answer Key 1. A) Prepare a calculation to show the cost of this machine. $23,500 x 0.02 =

More information

Chapter 9 - REPORTING AND ANALYZING LONG-LIVED ASSETS

Chapter 9 - REPORTING AND ANALYZING LONG-LIVED ASSETS Revised Summer 2018 Chapter 9 Review 1 Chapter 9 - REPORTING AND ANALYZING LONG-LIVED ASSETS LO 1: Explain the accounting for plant asset expenditures. Plant Assets (Also known as Property, Plant, and

More information

Financial Accounting Chapter 10: Property, Plant and Equipment and Intangibles Answer Key

Financial Accounting Chapter 10: Property, Plant and Equipment and Intangibles Answer Key Supplemental Instruction Handouts Financial Accounting Chapter 10: Property, Plant and Equipment and Intangibles Answer Key 1. A) Prepare a calculation to show the cost of this machine. $23,500 x 0.02

More information

Accounting B LECTURE 1: NON-CURRENT ASSETS. Recording, expensing and reporting non-current assets

Accounting B LECTURE 1: NON-CURRENT ASSETS. Recording, expensing and reporting non-current assets Accounting B LECTURE 1: NON-CURRENT ASSETS Recording, expensing and reporting non-current assets - Asset: a resource controlled by an entity because of past events and from which future economic benefits

More information

CHAPTER 9 LONG-LIVED ASSETS SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM S TAXONOMY

CHAPTER 9 LONG-LIVED ASSETS SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM S TAXONOMY CHAPTER 9 LONG-LIVED ASSETS SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM S TAXONOMY Item SO BT Item SO BT Item SO BT Item SO BT Item SO BT True-False Statements 1. 1 K 17. 2 K 33. 2 C 49. 3 K 65.

More information

Chapter 10: Fixed Assets and Intangible Assets

Chapter 10: Fixed Assets and Intangible Assets Chapter 10: Fixed Assets and Intangible Assets Nature of Fixed Assets Fixed assets are long-term or relatively permanent assets, such as equipment, machinery, buildings, and land. Other descriptive titles

More information

Cornerstone 2 Basic Valuation of Machinery and Equipment

Cornerstone 2 Basic Valuation of Machinery and Equipment INSTITUTE FOR PROFESSIONALS IN TAXATION PERSONAL PROPERTY TAX SCHOOL Cornerstone 2 Basic Valuation of Machinery and Equipment Learning Objectives At the end of this section, the learner will be able to:

More information

CHAPTER 10 Capital Assets

CHAPTER 10 Capital Assets CHAPTER 10 Capital Assets ASSIGNMENT CLASSIFICATION TABLE Study Objectives Questions Brief Exercises Exercises Problems Set A Problems Set B 1. Distinguish between tangible and intangible capital assets.

More information

Adopted: November 2013 MSBA/MASA Model Policy 704 Orig Revised: May 2015 Rev. 2009

Adopted: November 2013 MSBA/MASA Model Policy 704 Orig Revised: May 2015 Rev. 2009 Adopted: November 2013 MSBA/MASA Model Policy 704 Orig. 1995 Revised: May 2015 Rev. 2009 704 DEVELOPMENT AND MAINTENANCE OF AN INVENTORY OF FIXED ASSETS AND A FIXED ASSET ACCOUNTING SYSTEM I. PURPOSE The

More information

Before Class starts.(make sure your name is on all submissions)

Before Class starts.(make sure your name is on all submissions) Before Class starts.(make sure your name is on all submissions) March 27 exam conflicts must be resolved before Spring break. Fourth Homework due Thursday 3/6 before class. Fifth Homework due 3/20 before

More information

Solutions to Questions

Solutions to Questions Uploaded By Qasim Mughal http://world-best-free.blogspot.com/ Chapter 7 Variable Costing: A Tool for Management Solutions to Questions 7-1 Absorption and variable costing differ in how they handle fixed

More information

ACCT 100 Chapter 5 - Adjusting Entries and the Worksheet Prof. Johnson

ACCT 100 Chapter 5 - Adjusting Entries and the Worksheet Prof. Johnson ACCT 100 Chapter 5 - Adjusting Entries and the Worksheet Prof. Johnson Where We've Been We've been working our way through a complete accounting cycle. Specifically, we have learned to: Analyze business

More information

Chapter 9 Question Review 1

Chapter 9 Question Review 1 Chapter 9 Question Review 1 Chapter 9 Questions Multiple Choice 1. The calculation of depreciation using the declining-balance method a. ignores salvage value in determining the amount to which a constant

More information

Depreciation and Depletion

Depreciation and Depletion Principles Depreciation and Depletion Prof.Sherif Sabry Spring 2009 1 Depreciation and Depletion Lecture outline Concept of depreciation What depreciation is not for Depreciation methods Asset impairment

More information

Intangibles CHAPTER CHAPTER OBJECTIVES. After careful study of this chapter, you will be able to:

Intangibles CHAPTER CHAPTER OBJECTIVES. After careful study of this chapter, you will be able to: CHAPTER Intangibles CHAPTER OBJECTIVES After careful study of this chapter, you will be able to: 1. Explain the accounting alternatives for intangibles. 2. Record the amortization or impairment of intangibles.

More information

International Accounting Standard 17 Leases. Objective. Scope. Definitions IAS 17

International Accounting Standard 17 Leases. Objective. Scope. Definitions IAS 17 International Accounting Standard 17 Leases Objective 1 The objective of this Standard is to prescribe, for lessees and lessors, the appropriate accounting policies and disclosure to apply in relation

More information

Cost Engineering Dr. Nabil I El Sawalhi Associate professor Construction Management

Cost Engineering Dr. Nabil I El Sawalhi Associate professor Construction Management Cost Engineering Dr. Nabil I El Sawalhi Associate professor Construction Management CE - L6 1 Construction Equipment CE - L6 2 Equipment can be classified as specific use or general use. Specific Use Equipment

More information

Transferring Farm Machinery through a Lease Agreement Michael Langemeier, Associate Director, Center for Commercial Agriculture

Transferring Farm Machinery through a Lease Agreement Michael Langemeier, Associate Director, Center for Commercial Agriculture March 2017 Transferring Farm Machinery through a Lease Agreement Michael Langemeier, Associate Director, Center for Commercial Agriculture There are numerous methods to transfer the ownership of farm machinery.

More information

CAPITAL ASSET POLICY

CAPITAL ASSET POLICY CAPITAL ASSET POLICY POLICY STATEMENT Morningside College, through each of its operating departments acquires and disposes of capital assets. Each department is responsible for following College procedures

More information

ACCOUNTING - CLUTCH CH. 8 - LONG LIVED ASSETS.

ACCOUNTING - CLUTCH CH. 8 - LONG LIVED ASSETS. !! www.clutchprep.com CONCEPT: INITIAL COST OF LONG-LIVED (PLANT) ASSETS Plant Assets include,,, and RULE: Initial cost includes the price plus all expenditures to make an asset When recording the initial

More information

LKAS 17 Sri Lanka Accounting Standard LKAS 17

LKAS 17 Sri Lanka Accounting Standard LKAS 17 Sri Lanka Accounting Standard LKAS 17 Leases CONTENTS SRI LANKA ACCOUNTING STANDARD LKAS 17 LEASES paragraphs OBJECTIVE 1 SCOPE 2 DEFINITIONS 4 CLASSIFICATION OF LEASES 7 LEASES IN THE FINANCIAL STATEMENTS

More information

CHAPTER 21. Accounting for Leases. *1. Rationale for leasing. 1, 2, 4 1, 2 3, 6, 7, 8, 14 5, 9, 10, 11, 12, 13 15, 16, 17, 18

CHAPTER 21. Accounting for Leases. *1. Rationale for leasing. 1, 2, 4 1, 2 3, 6, 7, 8, 14 5, 9, 10, 11, 12, 13 15, 16, 17, 18 CHAPTER 21 Accounting for Leases ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics Questions Brief Exercises Exercises Problems Concepts for Analysis *1. Rationale for leasing. 1, 2, 4 1, 2 *2. Lessees;

More information

Depreciation Methods: Units of Production and Reducing Balance. from businessbankingcoach.com in association with

Depreciation Methods: Units of Production and Reducing Balance. from businessbankingcoach.com in association with Depreciation Methods: Units of Production and Reducing Balance from businessbankingcoach.com in association with Last time the topic of the presentation was the straight-line method of calculating depreciation.

More information

Sri Lanka Accounting Standard-LKAS 17. Leases

Sri Lanka Accounting Standard-LKAS 17. Leases Sri Lanka Accounting Standard-LKAS 17 Leases -516- Sri Lanka Accounting Standard-LKAS 17 Leases Sri Lanka Accounting Standard LKAS 17 Leases is set out in paragraphs 1 69. All the paragraphs have equal

More information

Test Code F1 Branch (MULTIPLE) (Date : )

Test Code F1 Branch (MULTIPLE) (Date : ) FINAL CA May 2018 ACCOUNTING STANDARDS (PART 1) Test Code F1 Branch (MULTIPLE) (Date : 03.12.2017) (50 Marks) compulsory. Note: All questions are Question 1 (5 marks) As per para 10 of AS 2 Valuation of

More information

Reporting and Analyzing Long-Term Operating Assets. Learning Objectives coverage by question 12, 13, 16, 18

Reporting and Analyzing Long-Term Operating Assets. Learning Objectives coverage by question 12, 13, 16, 18 Chapter 8 Reporting and Analyzing Long-Term Operating Assets Learning Objectives coverage by question Miniexercises Exercises Problems Cases LO1 Describe and distinguish between tangible and intangible

More information

Taxes and Land Preservation Computing the Capital Gains Tax

Taxes and Land Preservation Computing the Capital Gains Tax Fact Sheet 780 Taxes and Land Preservation Computing the Capital Gains Tax Many farmers have their wealth tied up in their land and would like to convert some of this land value into cash. Others want

More information

How To Depreciate Property

How To Depreciate Property Department of the Treasury Internal Revenue Service Publication 946 Cat. No. 13081F How To Depreciate Property Section 179 Deduction MACRS Listed Property For use in preparing 1999 Returns Contents Introduction...

More information

MASTERING DEPRECIATION

MASTERING DEPRECIATION Final Examination (Optional) MASTERING DEPRECIATION Instructions: Detach the Final Examination Answer Sheet on page 217 before beginning your final examination. Select the correct letter for the answer

More information

CHAPTER 10 FIXED ASSETS AND INTANGIBLE ASSETS

CHAPTER 10 FIXED ASSETS AND INTANGIBLE ASSETS 1. a. Property, plant, and equipment or Fixed assets b. Current assets (merchandise inventory) 2. Real estate acquired as speculation should be listed in the balance sheet under the caption Investments,

More information

Plant assets are resources that have

Plant assets are resources that have 10-1 LEARNING OBJECTIVE 1 Explain the accounting for plant asset expenditures. Plant assets are resources that have physical substance (a definite size and shape), are used in the operations of a business,

More information

EXERCISES: SET B. Exercises: Set B 1

EXERCISES: SET B. Exercises: Set B 1 Exercises: Set B 1 EXERCISES: SET B E9-1B The following expenditures relating to plant assets were made by Laurie Company during the first 2 months of 2014. 1. Paid $5,000 of accrued taxes at time plant

More information

Auditing PP&E, Including Leases

Auditing PP&E, Including Leases Auditing PP&E, Including Leases Learning Objectives Discuss typical audit risks and special considerations. Tailor an audit plan to assessed audit risk. Explain key controls related to PP&E. Describe lease

More information

Financial Accounting. John J. Wild. Sixth Edition. Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Financial Accounting. John J. Wild. Sixth Edition. Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Financial Accounting John J. Wild Sixth Edition McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 08 Reporting and Analyzing Long-Term Assets Conceptual Learning

More information

Digital Splash. Problem 17: Plant Assets Acquisition, Disposal, and Depreciation. Zeke s Pedalorium. Algorithmic Problems and Simulations

Digital Splash. Problem 17: Plant Assets Acquisition, Disposal, and Depreciation. Zeke s Pedalorium. Algorithmic Problems and Simulations Digital Splash Algorithmic Problems and Simulations 1 st Web- Based Edition Problem 17: Plant Assets Acquisition, Disposal, and Depreciation Zeke s Pedalorium NBE Achievement Standard: 2) Apply GAAP to

More information

ACY 1112 Suggested Solutions Problem 1 (a) Direct Materials $35 Direct Labor 36 Variable Manufacturing Overheads 3 Unit Product Cost $74

ACY 1112 Suggested Solutions Problem 1 (a) Direct Materials $35 Direct Labor 36 Variable Manufacturing Overheads 3 Unit Product Cost $74 2007 2008 ACY 1112 Suggested Solutions Problem 1 Direct Materials $35 Direct Labor 3 Variable Manufacturing Overheads 3 Unit Product Cost $74 PQ Company Income Statement for the month Sales $834,900 Variable

More information

Long-Term Assets C AT EDRÁTICO U PR R I O P I EDRAS S EG. S EM

Long-Term Assets C AT EDRÁTICO U PR R I O P I EDRAS S EG. S EM Long-Term Assets E DWIN R ENÁN MALDONADO C AT EDRÁTICO U PR R I O P I EDRAS S EG. S EM. 2 017-18 Textbook: Financial Accounting, Spiceland This presentation contains information, in addition to the material

More information

Chapter 10 Capital Assets Solutions. (g) NA (current asset) (h) NR (i) NA (inventory) (j) I (k) I (l) NA (investment) (m) NR (n) NR (o) NR (p) I

Chapter 10 Capital Assets Solutions. (g) NA (current asset) (h) NR (i) NA (inventory) (j) I (k) I (l) NA (investment) (m) NR (n) NR (o) NR (p) I Chapter 10 Capital Assets Solutions Assigned Questions: Study Objective Textbook Pages to Read 9 p. 481-486 19 14-10 Solutions: Q1. Tangible and intangible capital assets both are long-lived assets that

More information

A 1: It( SPECIFIC ITEMS SECTION 3061 property, plant and equipment. Additional Resources. Page 1 of6. Knotia - CICA Handbook - Accounting A2-14

A 1: It( SPECIFIC ITEMS SECTION 3061 property, plant and equipment. Additional Resources. Page 1 of6. Knotia - CICA Handbook - Accounting A2-14 '" Knotia - CICA Handbook - Accounting»Accounting»Accounting Handbook»Accounting Standards»Specific items [Sections 3000-3870]»3061 - Property, Plant and Eauipment Page 1 of6 A 1: It( A2-14 SPECIFIC ITEMS

More information

Chapter 4: Accounting for Depreciation

Chapter 4: Accounting for Depreciation Chapter 4: The Concept of 4.1 The Concept of Depreciable assets are physical objects that retain their size and shape but that eventually wear out or become obsolete. They are not physically consumed,

More information

Financial Accounting: A Business Perspective 10e

Financial Accounting: A Business Perspective 10e Book Information Page Announcing the 2012 Publication of: Financial Accounting: A Business Perspective 10e Roger H. Hermanson Georgia State University (Emeritus) James Don Edwards University of Georgia

More information

Accounting 1 Instructor Notes

Accounting 1 Instructor Notes Accounting 1 Instructor Notes CHAPTER 10 FIXED ASSETS AND INTANGIBLE ASSETS McDonald's was founded in 1955 and the company now has 22,500 restaurants in 122 countries around the world. Approximately 70

More information

Reading 3.6. UNSW Business School, Depreciation of property, plant and equipment, UNSW Sydney.

Reading 3.6. UNSW Business School, Depreciation of property, plant and equipment, UNSW Sydney. WARNING This material has been reproduced and communicated to you by or on behalf of the University of New South Wales in accordance with Section 113P of the Copyright Act 1968 (Act). The material in this

More information

STUDY OBJECTIVE 1 CAPITAL ASSETS

STUDY OBJECTIVE 1 CAPITAL ASSETS Collaboratively Created Collection of Chapter 10 Content STUDY OBJECTIVE 1 CAPITAL ASSETS Capital Assets are used throughout many cycles of a business and are reused over and over again. These assets are

More information

SLAS 19 (Revised 2000) Sri Lanka Accounting Standard SLAS 19 (Revised 2000) LEASES

SLAS 19 (Revised 2000) Sri Lanka Accounting Standard SLAS 19 (Revised 2000) LEASES Sri Lanka Accounting Standard SLAS 19 (Revised 2000) LEASES 265 Introduction This Standard (SLAS 19 (revised 2000) ) replaces Sri Lanka Accounting Standard SLAS 19, Accounting for Leases ( the original

More information

Leases. (a) the lease transfers ownership of the asset to the lessee by the end of the lease term.

Leases. (a) the lease transfers ownership of the asset to the lessee by the end of the lease term. Leases 1.1. Classification of leases A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease

More information

BUSI 330 Suggested Answers to Review and Discussion Questions: Lesson 10

BUSI 330 Suggested Answers to Review and Discussion Questions: Lesson 10 BUSI 330 Suggested Answers to Review and Discussion Questions: Lesson 10 1. The client should give you a copy of their income and expense statements for the last 3 years showing their rental income by

More information

Acquisition cost Purchase price plus all expenditures needed to prepare the asset for its intended use

Acquisition cost Purchase price plus all expenditures needed to prepare the asset for its intended use CAPITAL ASSETS Issues to consider: Compute initial acquisition cost Account for subsequent costs Allocate cost to periods benefited Record disposal Acquisition cost Purchase price plus all expenditures

More information

TANGIBLE CAPITAL ASSETS

TANGIBLE CAPITAL ASSETS Administrative Procedure 535 Background TANGIBLE CAPITAL ASSETS The Division will follow a prescribed procedure to record and manage the tangible capital assets (TCA) owned by the Division. The treatment

More information

Work4Me Accounting Simulations. Problem Fourteen

Work4Me Accounting Simulations. Problem Fourteen Work4Me Accounting Simulations 3 rd Web-Based Edition Problem Fourteen Plant Acquisition and Disposal Page 1 INTRODUCTION The Deco-Block Company buys decorative pre-cast cement blocks for retaining walls

More information

A Comparative Study on Depreciation as Per Companies Act and Income Tax Act in Indian Context

A Comparative Study on Depreciation as Per Companies Act and Income Tax Act in Indian Context A Comparative Study on as Per Companies Act and Income Tax Act in Indian Context CA. Poorvee Malde Visiting Lecturer Shri G. H. G. Commerce and Shri D. D. Nagda B.B.A. College, Jamnagar. Email: poorvee.malde@oshwaleducationtrust.org

More information

TOWN OF LINCOLN COUNCIL POLICY

TOWN OF LINCOLN COUNCIL POLICY Page 1 of 10 PURPOSE The purpose of this policy is to prescribe the accounting treatment for tangible capital assets so that users of the financial report can discern information about the investment in

More information

ACC100 Introduction to Accounting

ACC100 Introduction to Accounting ACC100 Introduction to Accounting Week 7 Non-Current Assets: Acquisition and Depreciation Chapter 14 Non-Current Assets: Acquisition and depreciation Study Group Australia Pty Limited, SGA1286-F2/10/12

More information

CAPITAL ASSETS MVECA. Presented by: Larry Weeks, CPA

CAPITAL ASSETS MVECA. Presented by: Larry Weeks, CPA CAPITAL ASSETS MVECA Presented by: Larry Weeks, CPA Capital Assets Overarching theory of MATERIALITY GAAP need not be applied to immaterial amounts. 2 GASB Codification Section 1400 Reporting Capital Assets

More information

Accounting for Leases in Public Sector (IPSAS 13 Leases)

Accounting for Leases in Public Sector (IPSAS 13 Leases) TRAINING WORKSHOP ON APPLICATION OF IPSASs Accounting for Leases in Public Sector (IPSAS 13 Leases) By Yona Killagane NSSF COMMERCIAL COMPLEX MOROGORO 7thApril 2017 Objectives and Scope Objective: Prescribes

More information

CP:

CP: Adeng Pustikaningsih, M.Si. Dosen Jurusan Pendidikan Akuntansi Fakultas Ekonomi Universitas Negeri Yogyakarta CP: 08 222 180 1695 Email : adengpustikaningsih@uny.ac.id 10-1 10-2 PREVIEW OF CHAPTER 10 10-3

More information

Series: Capital Investments How to Calculate Straight-line Depreciation

Series: Capital Investments How to Calculate Straight-line Depreciation Series: Capital Investments How to Calculate Straight-line Table of Contents The Straight-Line Method... 2 An Example of How to Calculate Straight-line... 2 Practice How to Calculate Straight-line... 4

More information

2) All long-term leases should be capitalized in the accounts by the lessee.

2) All long-term leases should be capitalized in the accounts by the lessee. Chapter 18 Leases 1) The principal attribute of finance leases is that the risks and rewards of asset ownership are deemed to remain with the lessor. LO: 18-02 List the criteria for classification of a

More information

Capital Asset Procedures

Capital Asset Procedures Capital assets include land, improvements to land, easements, buildings, building improvements, vehicles, machinery, equipment, works of art, historical treasures, infrastructure, software and all other

More information

To download more slides, ebook, solutions and test bank, visit CHAPTER 21 ACCOUNTING FOR LEASES

To download more slides, ebook, solutions and test bank, visit  CHAPTER 21 ACCOUNTING FOR LEASES CHAPTER 21 ACCOUNTING FOR LEASES IFRS questions are available at the end of this chapter. TRUE-FALSE Conceptual Answer No. Description T 1. Benefits of leasing. F 2. Accounting for long-term leases. F

More information

Comparative analysis of methods of computing building depreciation

Comparative analysis of methods of computing building depreciation Comparative analysis s computing building depreciation Ms. Sayali S. Sandbhor *¹, Dr. N. B. Chaphalkar #² 1 Research Scholar, Civil Engineering Department, Symbiosis International University Pune, Maharashtra,

More information