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1、PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPAProperty, Plant, and Equipment and Intangible Assets: Utilization and Impairment11Copyright 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
2、McGraw-Hill/Irwin11 - 2Some of the cost is expensed each period.Cost Allocation An OverviewExpenseAcquisition Cost(Balance Sheet)(Income Statement)The matching principle requires that part of the acquisition cost of property, plant, and equipment and intangible assets be expensed in periods when the
3、 future revenues are earned.Depreciation, depletion, and amortization are cost allocation processes used to help meet the matching principle requirements.11 - 3Caution! Depreciation, depletion, and amortization are processes of cost allocation, not valuation!Depreciation on the Balance SheetCost All
4、ocation An Overview11 - 4Cost allocation requires three pieces of information for each asset:The estimated expected The estimated expected use from an asset. use from an asset. Total amount of cost to be allocated.Cost - Residual Value (at end of useful life)The systematic approach used for allocati
5、on. Allocation BaseServiceLifeAllocation MethodMeasuring Cost Allocation11 - 5Time-based Methods lStraight-line (SL) lAccelerated Methods Sum-of-the-years digits (SYD) Declining Balance (DB)Activity-based methods Units-of-production method (UOP).Group and compositemethodsTaxTax depreciationdepreciat
6、ionDepreciation11 - 6Straight-LineThe most widely The most widely used and most easily used and most easily understood method.understood method.Results in the same Results in the same amount of depreciation in amount of depreciation in each year of the assets each year of the assets service life.ser
7、vice life.On January 1, we purchase equipment for $50,000 cash. The equipment has an estimated service life of 5 years and estimated residual value of $5,000. What is the annual straight-line depreciation?11 - 7Residual ValueResidual ValueBV = Residual Value at the end of the assets useful life.Stra
8、ight-LineLife in YearsDepreciation11 - 8Accelerated MethodsNote that total depreciation over the assets useful life is the same as the straight-line method.Accelerated methods result in more depreciation in the early years of an assets useful life and less depreciation in later years of an assets us
9、eful life.Sum-of-the-years-digits (SYD) depreciation11 - 92Sum-of-the-Years Digits (SYD)On January 1, we purchase equipment for $50,000 cash. The equipment has a service life of 5 years and an estimated residual value of $5,000. Using SYD depreciation, compute depreciation for the first two years.11
10、 - 10Sum-of-the-Years Digits (SYD)11 - 11Residual ValueResidual ValueLife in YearsDepreciationSum-of-the-Years Digits (SYD)11 - 12Declining-Balance (DB) MethodsDB depreciation Based on the straight-line rate multiplied by an acceleration factor. Computations initially ignore residual value.Stop depr
11、eciating when:BV = Residual ValueDouble-Declining-Balance (DDB) depreciation is computed as follows:Note that the Book Value will get lower each year.11 - 13On January 1, we purchase equipment for $50,000 cash. The equipment has a service life of 5 years and an estimated residual value of $5,000. Wh
12、at is depreciation for the first two years using double-declining-balance?Declining-Balance (DB) Methods11 - 14Depreciation forced so that BV = Residual Value.Life in YearsDepreciationDeclining-Balance (DB) Methods11 - 15Units-of-Production11 - 16On January 1, we purchased equipment for $50,000 cash
13、. The equipment is expected to produce 100,000 units during its life and has an estimated residual value of $5,000. If 22,000 units were produced this year, what is the amount of depreciation?Units-of-Production11 - 17Use of Various Depreciation Methods11 - 18U.S. GAAP vs. IFRSComponent depreciation
14、 is allowed but not often used in practice. The depreciable base is determined by subtracting estimated residual value from cost. Annual reviews of residual values are not required.Each component of an item of property, plant, and equipment is depreciated separately if its cost is significant to the
15、 total cost of the item. Depreciable base is determined by subtracting estimated residual value from cost. IFRS requires a review of residual values annually.Component Depreciation, Depreciable Base, and Residual Value11 - 19Group and Composite Methods Assets are grouped by common characteristics. A
16、n average depreciation rate is used. Annual depreciation is the average rate the total group acquisition cost. Accumulated depreciation records are not maintained for individual assets.If assets in the group are sold, or new assets added, the composite rate remains the same.When an asset in the group is sold or retired, debit accumulated depreciation for the difference between the assets cost and
