...margin for the month, Choi decides to change her depreciation rule from recognizing assets on the first day of the month nearest the purchase date to recognizing assets on the first day of the following month. Identify decisions that managers must make in applying depreciation, is Choi’s rule ethical, how might this change affect profit margins? Plant assets are defined as “tangible assets used in the company’s operations that have a useful life of more than one accounting period” (Wild, Shaw, & Chiapetta, 2013, 396). When making decisions regarding depreciation, managers must look at the accounting rules regarding depreciation, the industry standards for depreciation, cost and salvage value, useful life, and the methods and their overall impact on the business (Wild, Shaw, & Chiapetta, 2013). When looking at which method to use, managers must reflect on the method’s impact on profits as well as the impact on taxes. When choosing one method it may increase net income, but may also increase the amount of taxes paid because of higher reported income. Therefore a method that results in higher incomes, will be offset by increases in taxes due. Therefore it is the manager’s job to choose what the company’s actual goal is and choose the method that suits the strategy (Stice & Stice, 2008). Companies are not constrained by law as to what depreciation method they choose and therefore the organization may choose whichever depreciation method that suits the organization’s purpose, as...
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...1994) Depreciation Accounting Contents INTRODUCTION Definitions EXPLANATION Paragraphs 1-3 3 4-19 Disclosure 17-19 MAIN PRINCIPLES 20-29 94 AS 6 (issued 1982) Depreciation Accounting 99 Accounting Standard (AS) 6* (revised 1994) Depreciation Accounting [This Accounting Standard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of the Preface to the Statements of Accounting Standards 1 and the ‘Applicability of Accounting Standards to Various Entities’ (See Appendix 1 to this Compendium).] Introduction 1. This Standard deals with depreciation accounting and applies to all depreciable assets, except the following items to which special considerations apply:— (i) forests, plantations and similar regenerative natural resources; (ii) wasting assets including expenditure on the exploration for and extraction of minerals, oils, natural gas and similar nonregenerative resources; (iii) expenditure on research and development; (iv) goodwill and other intangible assets; (v) live stock. This standard also does not apply to land unless it has a limited useful life for the enterprise. 2. Different accounting policies for depreciation are adopted by different enterprises. Disclosure of accounting policies for depreciation followed by * Accounting Standard (AS) 6, Depreciation Accounting...
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...CHAPTER 11 DEPRECIATION, IMPAIRMENTS, AND DEPLETION IFRS questions are available at the end of this chapter. TRUe-FALSe—Conceptual Answer No. Description T 1. Nature of depreciation. F 2. Nature of depreciation. T 3. Depreciation, depletion, and amortization. T 4. Definition of depreciation base. F 5. Factors involved in depreciation process. F 6. Definition of inadequacy. T 7. Objection to straight-line method. F 8. Units-of-production approach. F 9. Accelerated depreciation method. T 10. Declining-balance method. T 11. Group or composite approach. F 12. Use of the composite approach. T 13. Accounting for changes in estimates. F 14. Computation of impairment loss amount. T 15. First step in determining an impairment. T 16. Reporting impaired assets held for disposal. F 17. Method used to compute depletion. T 18. Costs included in depletion base. F 19. Computing asset turnover ratio. T 20 Profit margin on sales ratio. Multiple Choice—Conceptual Answer No. Description d 21. Knowledge of depreciation accounting. b 22. Conceptual rationale for depreciation accounting. c 23. Depreciation and retaining funds. b S24. Definition of depreciation. a S25. Service life vs. physical life. a P26. Definition of depreciable cost. d 27. Economic factors affecting useful service life. d 28. Factors involved in computing depreciation. d 29. Straight-line method assumption. a 30. Activity method of depreciation. a 31...
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...Basis of Depreciation 1 Basis of Depreciation A Comparison Between Generally Accepted Accounting Principles (GAAP) and Income Tax Basis Basis of Depreciation 2 Abstract The basic concept of depreciation is based on the assumption that most property, plant, and equipment assets or depreciable assets have a useful life over which they are consumed. The portion of these depreciable assets consumed through usage or obsolescence is what accountant refers to as depreciation. The measurement of depreciation according to Generally Accepted Accounting Principles (GAAP) follow the “cost principle” and “matching principle”; in that depreciable assets cost should be valued at their original or historical cost, and that depreciation expense is recognized in the same period the benefit was derived from the consumption of the said asset. On the other hand, Income Tax Basis follows the concept of “recovery period”; in that businesses recover the cost of the depreciable assets faster because the period (useful life) is accelerated. This paper will compare and contrast Income Tax Basis for depreciation and GAAP basis for depreciation. Basis of Depreciation ...
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...Course Name: Principles of Accounting Course Code: F-103 |PLANT AND EQUIPMENT | University of Dhaka Plant and Equipment Submitted to: Ms. Nusrat Khan Lecturer Department of Finance University of Dhaka Submitted by: Group No. 09 Section “A” BBA 18th Batch Department of Finance University of Dhaka Date of Submission: April 23, 2012 GROUP PROFILE Group No. 09 Section “A” BBA 18th Batch Department of Finance University of Dhaka |SL No. |Name |Roll | |01. |Farhana Islam Ajanta | 18-045 | |02. |Khandakar Fazle Rabbi | 18-067 | |03. |Farid Molla | 18-115 | |04. |Sadia Sharmin Bristy | 18-123 | |05. |Md. Nowshad Molla | 18-133 | |06. |Sirazum Munira Haque ...
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...JWCL165_c09_396-443.qxd 8/4/09 9:39 PM Page 396 Chapter 9 Plant Assets, Natural Resources, and Intangible Assets STUDY OBJECTIVES After studying this chapter, you should be able to: 1 Describe how the cost principle applies to plant assets. 2 Explain the concept of depreciation. 3 Compute periodic depreciation using different methods. 4 Describe the procedure for revising periodic depreciation. 5 Distinguish between revenue and capital expenditures, and explain the entries for each. 6 Explain how to account for the disposal of a plant asset. 7 Compute periodic depletion of natural resources. 8 Explain the basic issues related to accounting for intangible assets. 9 Indicate how plant assets, natural resources, and intangible assets are The Navigator reported. ✓ The Navigator Scan Study Objectives Read Feature Story Read Preview Read text and answer p. 402 ■ ■ ■ ■ p. 409 ■ Do it! p. 412 Do it! ■ p. 417 ■ ■ ■ ■ ■ ■ Work Comprehensive p. 421 p. 422 Review Summary of Study Objectives Answer Self-Study Questions Complete Assignments ✓ Feature Story HOW MUCH FOR A RIDE TO THE BEACH? It’s spring break. Your plane has landed, you’ve finally found your bags, and you’re dying to hit the beach—but first you need a “vehicular unit” to get 396 JWCL165_c09_396-443.qxd 7/31/09 4:20 PM Page 397 you there. As you turn away from baggage claim you see a long row of rental agency booths. Many are names you are familiar...
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...CHAPTER 11 Depreciation, Impairments, and Depletion ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) | | |Brief Exercises | | | Concepts for | |Topics |Questions | |Exercises |Problems |Analysis | |1. |Depreciation methods; meaning of |1, 2, 3, 4, 5, 6, | |1, 2, 3, 4, 5, 8, |1, 2, 3 |1, 2, 3, 4, 5 | | |depreciation; choice of depreciation |10, 14, | |14, 15 | | | | |methods. |20, 21, 22 | | | | | |2. |Computation of |7, 8, 9, 13 |1, 2, 3, 4 |1, 2, 3, 4, |1, 2, 3, |1, 2, 3 | | |depreciation. | | |5, 6, 7, |4, 8, 10, 11, 12 | | | | | | |10, 15 | | | |3. |Depreciation base. |6, 7 |5 |8, 14 |1, 2, 3, |3 | | | ...
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...CHAPTER 10 Plant Assets, Natural Resources, and Intangible Assets ASSIGNMENT CLASSIFICATION TABLE Brief Exercises 1, 2 A Problems 1A B Problems 1B Study Objectives 1. Describe how the cost principle applies to plant assets. Explain the concept of depreciation. Compute periodic depreciation using different methods. Describe the procedure for revising periodic depreciation. Distinguish between revenue and capital expenditures, and explain the entries for each. Explain how to account for the disposal of a plant asset. Compute periodic depletion of natural resources. Explain the basic issues related to accounting for intangible assets. Questions 1, 2, 3 Exercises 1, 2, 3 2. 4, 5 4 3. 6, 7, 22 3, 4, 5, 6 5, 6, 7 2A, 3A, 4A, 5A 4A 2B, 3B, 4B, 5B 4B 4. 8 7 8 5. 9, 24 8 6. 10, 11 9, 10 9, 10 5A, 6A 5B, 6B 7. 12, 13 11 11 8. 14, 15, 16, 17, 18, 19 12 12, 13 7A, 8A 7B, 8B 10-1 ASSIGNMENT CLASSIFICATION TABLE (Continued) Brief Exercises 13, 14 A Problems 5A, 7A, 9A B Problems 5B, 7B, 9B Study Objectives 9. Indicate how plant assets, natural resources, and intangible assets are reported. Questions 20, 21, 23 Exercises 14 *10. Explain how to account for the exchange of plant assets. 25, 26 15, 16 15, 16 10-2 ASSIGNMENT CHARACTERISTICS TABLE Problem Number 1A 2A 3A 4A 5A Difficulty Level Simple Simple Moderate Moderate Moderate Time Allotted (min.)...
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...trucks are examples of assets that will last for more than one year, but will not last indefinitely. Over time, these assets depreciate. Depreciation is defined as a non-cash expense that reduces the value of an asset as a result of physical or functional factors over time. Therefore, the costs of the fixed assets should be recorded as an expense over their useful lives, since they depreciate and must be replaced once the end of their useful life is reached. Physical depreciation factors include wear and tear during use or from being exposed to such things as weather. Functional depreciation factors include obsolescence or changes in customer needs that cause the asset to no longer provide services for which it was intended or needed. When it comes to computing depreciation, there are three factors that determine the depreciation expense for a fixed asset: the asset’s initial cost, expected useful life, and estimated residual value. And there are also three different ways to calculate depreciation: the straight –line method, the units-of-production method, and the double-declining-balance method. The straight-line method of depreciation provides the same amount of depreciation expense for each year of the asset’s useful life, and is known to be the most commonly used method of calculating depreciation. The unit’s-of-production method of depreciation provides the same amount of depreciation expense for each unit of production. Based on what the asset is, the unit’s-of-production...
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...CHAPTER 10 Plant Assets, Natural Resources, and Intangible Assets ASSIGNMENT CLASSIFICATION TABLE Brief Exercises 1, 2 A Problems 1A B Problems 1B Study Objectives 1. Describe how the cost principle applies to plant assets. Explain the concept of depreciation. Compute periodic depreciation using different methods. Describe the procedure for revising periodic depreciation. Distinguish between revenue and capital expenditures, and explain the entries for each. Explain how to account for the disposal of a plant asset. Compute periodic depletion of natural resources. Explain the basic issues related to accounting for intangible assets. Questions 1, 2, 3 Exercises 1, 2, 3 2. 4, 5 4 3. 6, 7, 22 3, 4, 5, 6 5, 6, 7 2A, 3A, 4A, 5A 4A 2B, 3B, 4B, 5B 4B 4. 8 7 8 5. 9, 24 8 6. 10, 11 9, 10 9, 10 5A, 6A 5B, 6B 7. 12, 13 11 11 8. 14, 15, 16, 17, 18, 19 12 12, 13 7A, 8A 7B, 8B 10-1 ASSIGNMENT CLASSIFICATION TABLE (Continued) Brief Exercises 13, 14 A Problems 5A, 7A, 9A B Problems 5B, 7B, 9B Study Objectives 9. Indicate how plant assets, natural resources, and intangible assets are reported. Questions 20, 21, 23 Exercises 14 *10. Explain how to account for the exchange of plant assets. 25, 26 15, 16 15, 16 10-2 ASSIGNMENT CHARACTERISTICS TABLE Problem Number 1A 2A 3A 4A 5A Difficulty Level Simple Simple Moderate Moderate Moderate Time Allotted (min.)...
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...EMPHASIZED IN CHAPTER 9 accelerated depreciation Methods of depreciation that call for recognition of relatively large amounts of depreciation in the early years of an asset’s useful life and relatively small amounts in the later years. amortization The systematic write-off to expense of the cost of an intangible asset over the periods of its economic usefulness. book value The cost of a plant asset minus the total recorded depreciation, as shown by the Accumulated Depreciation account. The remaining undepreciated cost is also known as carrying value. capital expenditures Costs incurred to acquire a long-lived asset. Expenditures that will benefit several accounting periods. capitalize A verb with two different meanings in accounting. The first is to debit an expenditure to an asset account, rather than directly to expense. The second is to determine the amount of an investment by dividing the annual return by the investor’s required rate of return. depletion Allocating the cost of a natural resource to the units removed as the resource is mined, pumped, cut, or otherwise consumed. depreciation The systematic allocation of the cost of an asset to expense over the years of its estimated useful life. fixed-percentage-of-declining-balance depreciation An accelerated method of depreciation in which the rate is a multiple of the straight-line rate and is applied each year to the undepreciated cost of the asset. The most commonly used rate is double the...
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...Topic 11: Define and Calculate Depreciation and Amortization Reference: Kimmel, Paul. D., Weygandt, Jerry. J. & Kieso, Donald. E. (2006). Financial Accounting: Tools for Business Decision Making (4th ed.). Hoboken, NJ: John Wiley & Sons. Used with permission from the publisher. Introduction Depreciation is the process of allocating to expense the cost of a plant asset over its useful (service) life in a rational and systematic manner. Such cost allocation is designed to properly match expenses with revenues. | | | Depreciation affects the balance sheet through accumulated depreciation, which companies report as a deduction from plant assets. It affects the income statement through depreciation expense. It is important to understand that depreciation is a cost allocation process, not an asset valuation process. No attempt is made to measure the change in an asset's market value during ownership. Thus, the book value—cost less accumulated depreciation—of a plant asset may differ significantly from its market value. In fact, if an asset is fully depreciated, it can have zero book value but still have a significant market value. Depreciation applies to three classes of plant assets: land improvements, buildings, and equipment. Each of these classes is considered to be a depreciable asset because the usefulness to the company and the revenue-producing ability of each class decline over the asset's useful life. Depreciation does not apply to land because...
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...CHAPTER 10 PLANT ASSETS, NATURAL RESOURCES, AND INTANGIBLE ASSETS SUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOM’S TAXONOMY Item 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. sg st a SO 1 1 1 1 1 1 2 2 2 2 2 3 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 BT K K K K K C C K C K K C K AP C C K C AP AP AP AP K C C AP K C AP AP K K K K K C K C K Item 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107. 108. 109. 110. 111. 112. 113. 114. SO 3 3 3 3 4 4 4 5 5 5 5 6 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 BT K K K K K K K K K K K K AP AP K AP K AP AP K K K K AP AP K AP C K AP AP AP AN AP AP AP AP C AP Item 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 119. 120. 121. 122. 123. 124. 125. 126. 127. 128. 129. 130. 131. 132. 133. 134. 135. 136. 137. 138. 139. 140. 141. 142. 143. 144. 145. SO 6 6 6 6 6 6 6 7 7 7 7 7 3 3 3 3 4 4 4 4 4 4 4 5 5 5 5 5 6 6 6 6 6 6 6 6 6 6 6 BT C C C K C K C K K K K K AP AP AP AP AP AP AP K K K AN K K K C C C K K C C AP K K C C C Item 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. a 47. a 48. 150. 151. 152. 153. 154. 155. 156. 157. 158. 159. 160. 161. 162. 163. 164. 165. 166. 167. 168. 169. 170. 171. 172. 173. 174. 175. 176. SO 7 7 8 8 8 8 8 9 9 9 10 10 6 6 6 6 7 7 7 7 7 7 7 7 7 7 8 8 8 8 8 8 8 8 8 8 8 8 8 BT C K K K K K K K K K...
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...chapter 2 Property Acquisition and Cost Recovery Learning Objectives Upon completing this chapter, you should be able to: LO 2-1 Explain the concept of basis and adjusted basis and describe the cost recovery methods used under the tax law to recover the cost of personal property, real property, intangible assets, and natural resources. Determine the applicable cost recovery (depreciation) life, method, and convention for tangible personal and real property and calculate the deduction allowable under basic MACRS. Explain the additional special cost recovery rules (§179, bonus, listed property) and calculate the deduction allowable under these rules. Explain the rationale behind amortization, describe the four categories of amortizable intangible assets, and calculate amortization expense. Explain cost recovery of natural resources and the allowable depletion methods. LO 2-2 LO 2-3 LO 2-4 LO 2-5 Storyline Summary Taxpayer: Teton Mountaineering Technology, LLC (Teton)—a calendar-year single-member LLC (treated as a sole proprietorship for tax purposes) Cody, Wyoming Steve Dallimore Teton must acquire property to start manufacturing operations and wants to understand the tax consequences of property acquisitions. Location: President/ Founder: Current situation: cave waiting for the tempest to pass, Steve had an epiphany—a design for a better ice-climbing tool. Since that moment, Steve has been quietly consumed with making his dream—designing and...
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...Depreciation Depreciation is a non-cash expense which reduces the value of a fixed asset except Land as a result of wear and tear, age, or obsolescence. Most assets lose their value over time (in other words, they depreciate), and must be replaced once the end of their useful or economic life is reached. There are several accounting methods that are used in order to write off an asset's depreciation cost over the period of its useful life because it is a non-cash expense, depreciation lowers the company's reported earnings while increasing free cash flow. In a simple word depreciation is all about the reduction in the value of fixed assets and the allocation of the cost of assets to periods in which the assets are used. While depreciation expense is recorded on the income statement of a business, its impact is generally recorded in a separate account and disclosed on the balance sheet as accumulated depreciation, under fixed assets, according to most accounting principles. Without an accumulated depreciation account on the balance sheet, depreciation expense is usually charged against the relevant asset directly. The values of the fixed assets stated on the balance sheet will decline, even if the business has not invested in or disposed of any assets. The amounts will roughly approximate fair value. Otherwise, depreciation expense is charged against accumulated depreciation. Showing accumulated depreciation separately on the balance sheet has the effect of preserving...
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