Chapter 8

Straight line depreciation

(Cost - Salvage value)/Useful Life

Example

$10000 - $1000/5 years = $1800

Record Depreciation

Depreciation expense Debit

Accumulated Depreciation Credit

Units of Productions Method

(Cost - Salvage value)/Total Units of Production

Declining Balance Depreciation

Straight line rate = 100/useful Life

Double Declining balance rate = 2 * Straight line rate

Depreciation expense = Double Declining * Beginning BB Ex. 40% * 10,000 = 4000

Partial Depreciation

Any method * (months/year)

Ex. $10000 - $1000/5 years * 3/12 = $450

Revenue expenditures

Does not increase plant assets life or capabilities

Recorded as an expense

Reported on the Income statement

Capital Expenditures

Provide benefits for longer than the current period

Recorded as an addition to the asset account

Reported on the balance sheet

Discarding Plant Assets: Asset Fully Depreciated

Accumulated Depreciation - Machinery Debit

Machinery Credit

Discarding Plant Assets: Asset Not Fully Depreciated

Depreciation Expense Debit

Accumulated Depreciation Credit

(If Disposed before end of year)

Accumulated Depreciation - Equipment Debit

Loss of Disposal of Equipment Debit

Equipment Credit

Discarding Plant Assets: Above Book Value

Depreciation Expense Debit

Accumulated Depreciation Credit

(If Disposed before end of year)

Cash Debit

Accumulated Depreciation Debit

Equipment Credit

Discarding Plant Assets: Below Book Value

Depreciation Expense Debit

Accumulated Depreciation Credit

(If Disposed before end of year)

Cash Debit

Loss on Disposal of Equipment Debit

Accumulated Depreciation Debit

Equipment Credit

What are natural resources

Things like oil, coal, and gold

Cost Determination and Depletion

Depletion per unit = (Cost - Salvage Value)/Total Units of Capacity

Depletion expense = Depletion per unit * Unites extracted and sold in period

Depletion of Natural Resources

Depletion Expense - Mineral Deposit Debit

Ore Inventory - Debit

Accumulated Depletion - Mineral Deposit Credit

Intangible Assets

Noncurrent assets without physical substance, Often provide exclusive rights or privileges, Useful life is often difficult to determine, Usually acquired for operational use,

Things like Patents, Copyrights, Franchises, Licenses, Trademarks, etc.

Journal entry for buying a intangible asset and annual amortization

Copyright Debit

Cash Credit

(Buying intangible)

Amortization expense - Copyright Ex. $1000/5 = 200 Debit

Accumulated amortization - copyright Credit