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Fixed assets
long-term, relatively permanent held assets
tangible resources (physical substance)
used in operation of the business
should last more than one year
not held for sale - "productive assets"
recorded at "cost"
also called Property, Plant & Equipment; or Plant assets
depreciation
process of allocating to expense of allocating to expense the cost of a fixed asset over its useful life
systematic and rational -- to properly match expenses with revenues
process of cost allocation NOT asset valuation
"net book value" = cost - accumulated depreciation
net book value does not represent market value
00:19
01:27 depreciable assets
land improvements, buildings, equipment, machinery, automobiles
NOT land!
wear and tear decreased revenue-producing ability of asset
impact of obsolescence on revenue producing ability of asset
straight-line depreciation method annual depreciation = cost - residual value/useful life
double-declining balance method
accelerated depreciation method
provides for a declining periodic expense over the expected useful life of the asset
what are the differences between the straight line and double declining balance method of depreciation?
straight-line costs less residual value; depreciation expense is constant
double-declining balance has declining book value, but not below residual value; depreciation expense is declining
tax considerations
IRS allows depreciation expense deduction from income
method chosen for taxes can be different from the method used in financial statements
requires: straight-line, MACRS (Modified Accelerated Cost Recovery System)
partial year depreciation depreciation is prorated based on the month the asset is placed in service
additional costs incurred after a fixed asset has been purchased and placed into service
capital expenditures extraordinary repairs and improvements; extends the useful life and/or adds service value to the asset; benefits multiple periods; relatively large dollar amount; infrequent and nonrecurring; added to the cost of the asset (improvement) or deducted from the balance in accumulated depreciation (extraordinary repair)
revenue expenditures routine maintenance and repairs; primarily benefit the current period; relatively small in dollar amount; frequent and recurring; expensed in the current period
disposal of assets sold, exchanged or retired
asset retirement loss on retirement/disposal equals net book value
Fixed assets
long-term, relatively permanent held assets
tangible resources (physical substance)
used in operation of the business
should last more than one year
not held for sale - "productive assets"
recorded at "cost"
also called Property, Plant & Equipment; or Plant assets
depreciation
process of allocating to expense of allocating to expense the cost of a fixed asset over its useful life
systematic and rational -- to properly match expenses with revenues
process of cost allocation NOT asset valuation
"net book value" = cost - accumulated depreciation
net book value does not represent market value
00:19
01:27 depreciable assets
land improvements, buildings, equipment, machinery, automobiles
NOT land!
wear and tear decreased revenue-producing ability of asset
impact of obsolescence on revenue producing ability of asset
straight-line depreciation method annual depreciation = cost - residual value/useful life
double-declining balance method
accelerated depreciation method
provides for a declining periodic expense over the expected useful life of the asset
what are the differences between the straight line and double declining balance method of depreciation?
straight-line costs less residual value; depreciation expense is constant
double-declining balance has declining book value, but not below residual value; depreciation expense is declining
tax considerations
IRS allows depreciation expense deduction from income
method chosen for taxes can be different from the method used in financial statements
requires: straight-line, MACRS (Modified Accelerated Cost Recovery System)
partial year depreciation depreciation is prorated based on the month the asset is placed in service
additional costs incurred after a fixed asset has been purchased and placed into service
capital expenditures extraordinary repairs and improvements; extends the useful life and/or adds service value to the asset; benefits multiple periods; relatively large dollar amount; infrequent and nonrecurring; added to the cost of the asset (improvement) or deducted from the balance in accumulated depreciation (extraordinary repair)
revenue expenditures routine maintenance and repairs; primarily benefit the current period; relatively small in dollar amount; frequent and recurring; expensed in the current period
disposal of assets sold, exchanged or retired
asset retirement loss on retirement/disposal equals net book value
