Chapter 8 - Long-term assets. Upon completion of this lesson, the successful participant will be able to: Explain the cost principle for computing the cost of plant assets; explain depreciation for partial years and changes in estimates; distinguish between revenue and capital expenditures, and account for them;. | Financial and Managerial Accounting Wild, Shaw, and Chiappetta Fourth Edition McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. 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- Analytical Learning Objectives A1: Compute total asset turnover and apply it to analyze a company’s use of assets. 8- Procedural Learning Objectives P1: Compute and record depreciation using the straight-line, units-of-production, and declining- balance 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- Called Property, Plant, & Equipment Plant Assets Expected to Benefit Future Periods Actively Used in Operations Tangible in Nature C 1 8- Decline in asset value over its useful life Use 2. Allocate cost to periods benefited. 3. Account for subsequent expenditures. Disposal 4. Record disposal. Plant Assets Acquisition 1. Compute cost. C 1 8- Depreciation is the process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use. Cost Allocation Acquisition Cost (Unused) Balance Sheet (Used) Income Statement Expense Depreciation P1 8- Straight-line Units-of-production Declining-balance Depreciation Methods P1 8- Straight-Line Method Cost - Salvage Value Useful life Depreciation Expense for Period = $9,000 Depreciation Expense per Year = $50,000 - $5,000 5 years = P1 8- Units-of-Production Method Step 2: Depreciation Expense = Depreciation Per Unit × Number of Units Produced in the Period Depreciation Per Unit = Cost - Salvage Value Total Units of Production Step 1: P1 8- Double-Declining-Balance Method Step 2: Double-declining- balance rate = 2 × Straight-line rate = 2 × 20% = 40% Step 1: Straight-line rate = 100 % ÷ Useful life = 100% ÷ 5 = 20% Step 3: Depreciation expense = Double-declining- balance rate × Beginning period book value 40% × $50,000 = $20,000 for 2011 P1 8- Recording cash received (debit) or paid (credit). Removing accumulated depreciation (debit). Update depreciation to the date of disposal. Journalize disposal by: Removing the asset cost (credit). Recording a gain (credit) or loss (debit). Disposals of Plant Assets P2 8- Noncurrent assets without physical substance. Useful life is often difficult to determine. Usually acquired for operational use. Intangible Assets Often provide exclusive rights or privileges. Intangible Assets P4 8- End of Chapter 8 8-
