Lecture financial and managerial accounting (4:e) chapter 8 wild, shaw, chiappetta

Financial and Managerial
Accounting

Wild, Shaw, and Chiappetta
Fourth Edition
McGraw-Hill/Irwin

Copyright © 2011 by The McGraw-Hill Companies, Inc. All


Chapter 8
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
1. Compute cost.

Use
2. Allocate cost to periods
benefited.
3. Account for subsequent
expenditures.

Disposal
4. 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

1.

Straight-line

2.

Units-of-production

3.

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
5 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% ÷ 5 = 20%
rate
Step 2:
Double-declining= 2 × Straight-line rate = 2 × 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).
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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

8-15