Accounting Accounts Receivable 0
CHAPTER 6
Objectives
Identify different types of long-term operational assets.
Determine the cost of long-term operational assets.
Explain how different depreciation methods affect financial statements.
Determine how gains and losses on disposals of long-term operational assets affect financial statements.
Explain how expense recognition for natural resources (depletion) affects financial statements.
Explain how expense recognition for intangible assets (amortization) affects financial statements.
Understand how expense recognition choices and industry characteristics affect financial performance measures.
Long-lived Assets Tangible Plant., Property, Equipment (depreciate); Natural Resources (deplete); Land Intangible Identifiable Useful Lives Indefinite Useful Lives Intangible assets or amortized verses depreciated or depleted
Life Cycle of Operational Assets Acquire Funding Buy Assets Use Asset Retire Asset
Depreciation
Double-declining-balance – produces more depreciation expense in the early years of an asset’s life, with a declining amount of expense in later years. Determine the straight-line rate of depreciation. Multiply the straight-line rate times two. Multiply the double-declining rate by the book value of the asset at the beginning of the period.
Straight-line method - the same amount of depreciation is taken each accounting period. (Asset Cost – Salvage Value) / Useful Life = Depreciation Expense
Units-of-Production – produces varying amounts of depreciation in different accounting periods depending upon the number of units produced. (Cost – Salvage Value) / Total Estimated Units of Production = Depreciation Charge per Units of Production Depreciation Charge * Units of Production = Depreciation Expense
Book Value = Cost – Accumulated Depreciation
Depletion of Natural Resources follows units of production model
Objectives
Identify different types of long-term operational assets.
Determine the cost of long-term operational assets.
Explain how different depreciation methods affect financial statements.
Determine how gains and losses on disposals of long-term operational assets affect financial statements.
Explain how expense recognition for natural resources (depletion) affects financial statements.
Explain how expense recognition for intangible assets (amortization) affects financial statements.
Understand how expense recognition choices and industry characteristics affect financial performance measures.
Long-lived Assets Tangible Plant., Property, Equipment (depreciate); Natural Resources (deplete); Land Intangible Identifiable Useful Lives Indefinite Useful Lives Intangible assets or amortized verses depreciated or depleted
Life Cycle of Operational Assets Acquire Funding Buy Assets Use Asset Retire Asset
Depreciation
Double-declining-balance – produces more depreciation expense in the early years of an asset’s life, with a declining amount of expense in later years. Determine the straight-line rate of depreciation. Multiply the straight-line rate times two. Multiply the double-declining rate by the book value of the asset at the beginning of the period.
Straight-line method - the same amount of depreciation is taken each accounting period. (Asset Cost – Salvage Value) / Useful Life = Depreciation Expense
Units-of-Production – produces varying amounts of depreciation in different accounting periods depending upon the number of units produced. (Cost – Salvage Value) / Total Estimated Units of Production = Depreciation Charge per Units of Production Depreciation Charge * Units of Production = Depreciation Expense
Book Value = Cost – Accumulated Depreciation
Depletion of Natural Resources follows units of production model