ACCT 115 ch 9 - Reporting and Analyzing Long lived assets

Plant assets

resources that have a physical substance, used in the opperations of a business, not intented for sale to customers, long lived assets, decline in service potential.

referred to as PROPERTY, PLANT, AND EQUIPMENT (FIXED ASSET)

Depreciation

the systematic allocation of the cost of a tangible asset over its useful life, reflecting the wear and tear or reduction in value of the asset.

depreciation expense is on income statement

accumulated depreciation is reported on balance sheet as a deduction from plant assets

depreciation method

straight line method, declining balance method, units of activity method

Depreciable cost (straight line method)

cost - salvage value

Depreciation expence (straight line method)

cost - salvage value/ useful life

straight line method

depreciation expense is the same amount each year

Declining balance method

accelerated method that decreases annual depreciation over assets useful life, double declining balance rate is DOUBLE the straight line rate (calculate %)

rate applied to book value

annual depreciation expense(Declining balance method)

book value beginning of year x depreciation rate

then take the book value of beginning of the yr and subtract from annual depreciation expense to result in salvage value

Units of activity method

estimate total units of activity to calculate depreciation cost per unit, expense varies based on units of activity, depreciable cost is cost LESS salvage value

Depreciation cost per unit (units of activity method)

depreciable cost / total units of activity

Depreciation expense (units of activity method)

depreciation cost per unit x units of activity during the year

impairments

permanent decline in the fair value of an asset, asset is written down to its new fair during the year in which the decline in value occurs

Intangible Assets

do not possess physical substance

examples : Patents, copyrights, franchises or licenses, goodwill, trademarks, trade names

Limited-life intangibles

assets that may expire at some point in timeand are amortized over their useful life.

Indefinite-life intangibles

no foreseeable limit on time asset is expected to provide cash flow

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