Financial and Managerial Accounting Wild, Shaw, and Chiappetta Fourth Edition McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc All Chapter Long-Term Assets Conceptual Learning Objectives C1: Explain the cost principle for computing the cost of plant assets C2: Distinguish between revenue and capital expenditures, and account for them C3: Explain depreciation for partial years and changes in estimates 8-3 Analytical Learning Objectives A1: Compute total asset turnover and apply it to analyze a company’s use of assets 8-4 Procedural Learning Objectives P1: Compute and record depreciation using the straight-line, units-of-production, and decliningbalance methods P2: Account for asset disposal through discarding or selling an asset P3: Account for natural resource assets and their depletion P4: Account for intangible assets P5: Appendix 8A – Account for asset exchanges (see text for details) 8-5 C1 Plant Assets Tangible in Nature Actively Used in Operations Expected to Benefit Future Periods Called Property, Plant, & Equipment 8-6 C1 Plant Assets Decl ine in as se over t val u its u e sefu l life Acquisition Compute cost Use Allocate cost to periods benefited Account for subsequent expenditures Disposal Record disposal 8-7 P1 Depreciation Depreciation is the process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use Balance Sheet Acquisition Cost (Unused) Income Statement Cost Allocation Expense (Used) 8-8 P1 Depreciation Methods Straight-line Units-of-production Declining-balance 8-9 P1 Straight-Line Method Depreciation = Expense for Period Depreciation = Expense per Year Cost - Salvage Value Useful life $50,000 - $5,000 = $9,000 years 8-10 P1 Units-of-Production Method Step 1: Depreciation Per Unit = Step 2: Depreciation Expense = Cost - Salvage Value Total Units of Production Number of Depreciation × Units Produced Per Unit in the Period 8-11 P1 Double-Declining-Balance Method Step 1: Straight-line = 100 % ÷ Useful life = 100% ÷ = 20% rate Step 2: Double-declining= × Straight-line rate = × 20% = balance rate 40% Step 3: Depreciation Double-decliningBeginning period = × expense balance rate book value 40% × $50,000 = $20,000 for 2011 8-12 P2 Disposals of Plant Assets Update depreciation to the date of disposal Journalize disposal by: Recording cash received (debit) or paid (credit) Removing accumulated depreciation (debit) Recording a gain (credit) or loss (debit) Removing the asset cost (credit) 8-13 P4 Intangible Assets Noncurrent Noncurrent assets assets without without physical physical substance substance Often Often provide provide exclusive exclusive rights rights or or privileges privileges Intangible Assets Useful Useful life life is is often often difficult difficult to to determine determine Usually Usually acquired acquired for for operational operational use use 8-14 End of Chapter 8-15 ... and changes in estimates 8- 3 Analytical Learning Objectives A1: Compute total asset turnover and apply it to analyze a company’s use of assets 8- 4 Procedural Learning Objectives P1: Compute and. . .Chapter Long-Term Assets Conceptual Learning Objectives C1: Explain the cost principle for computing the cost of plant assets C2: Distinguish between revenue and capital expenditures, and. .. (Unused) Income Statement Cost Allocation Expense (Used) 8- 8 P1 Depreciation Methods Straight-line Units-of-production Declining-balance 8- 9 P1 Straight-Line Method Depreciation = Expense for Period