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1、,C H A P T E R 11,DEPRECIATION, IMPAIRMENTS, AND DEPLETION,Intermediate Accounting IFRS Edition Kieso, Weygandt, and Warfield,Depreciation,Factors involved Methods of depreciation Component depreciation Special issues,Impairments,Depletion,Presentation and Analysis,Recognizing impairments Impairment
2、 illustrations Reversal of loss Cash-generating units Assets to be disposed of,Presentation Analysis,Establishing a base Write-off of resource cost Estimating reserves Liquidating dividends Presentation,Depreciation, Impairments, and Depletion,Revaluations,Recognition Issues,Allocating costs of long
3、-term assets: Long-lived assets = Depreciation expense Intangibles = Amortization expense Mineral resources = Depletion expense,Depreciation is the accounting process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from th
4、e use of the asset.,Depreciation - Method of Cost Allocation,LO 1 Explain the concept of depreciation.,Depreciation - Method of Cost Allocation,LO 2 Identify the factors involved in the depreciation process.,Three basic questions:,Factors Involved in the Depreciation Process,What depreciable base is
5、 to be used? What is the assets useful life? What method of cost apportionment is best?,Depreciation - Method of Cost Allocation,LO 2 Identify the factors involved in the depreciation process.,Depreciable Base,Factors Involved in the Depreciation Process,Illustration 11-1,Depreciation - Method of Co
6、st Allocation,LO 2 Identify the factors involved in the depreciation process.,Estimation of Service Lifes,Factors Involved in the Depreciation Process,Service life often differs from physical life. Companies retire assets for two reasons: Physical factors (casualty or expiration of physical life) Ec
7、onomic factors (inadequacy, supersession, and obsolescence).,Depreciation - Method of Cost Allocation,LO 3 Compare activity, straight-line, and diminishing-charge methods of depreciation.,The profession requires the method employed be “systematic and rational.” Examples include:,Methods of Depreciat
8、ion,Activity method (units of use or production). Straight-line method. Diminishing (accelerated)-charge methods: Sum-of-the-years-digits. Declining-balance method.,Depreciation - Method of Cost Allocation,LO 3,Activity Method,Illustration 11-2,Illustration: If Stanley uses the crane for 4,000 hours
9、 the first year, the depreciation charge is:,Stanley Coal Mines Facts,Illustration 11-3,Depreciation - Method of Cost Allocation,Straight-Line Method,Illustration: Stanley computes depreciation as follows:,Stanley Coal Mines Facts,Illustration 11-4,Illustration 11-2,LO 3,Depreciation - Method of Cos
10、t Allocation,Diminishing-Charge Methods,Stanley Coal Mines Facts,Sum-of-the-Years-Digits. Each fraction uses the sum of the years as a denominator (5 + 4 + 3 + 2 + 1 = 15). The numerator is the number of years of estimated life remaining as of the beginning of the year.,Illustration 11-2,n(n+1),2,=,
11、5(5+1),2,=,15,LO 3,Alternate sum-of-the-years calculation,Depreciation - Method of Cost Allocation,LO 3 Compare activity, straight-line, and diminishing-charge methods of depreciation.,Sum-of-the-Years-Digits,Illustration 11-6,Depreciation - Method of Cost Allocation,Stanley Coal Mines Facts,Declini
12、ng-Balance Method. Utilizes a depreciation rate (%) that is some multiple of the straight-line method. Does not deduct the residual value in computing the depreciation base.,Diminishing-Charge Methods,Illustration 11-2,LO 3,Depreciation - Method of Cost Allocation,LO 3 Compare activity, straight-lin
13、e, and diminishing-charge methods of depreciation.,Illustration 11-7,Declining-Balance Method,Depreciation - Method of Cost Allocation,LO 4 Explain component depreciation.,IFRS requires that each part of an item of property, plant, and equipment that is significant to the total cost of the asset mus
14、t be depreciated separately.,Component Depreciation,Depreciation - Method of Cost Allocation,LO 4 Explain component depreciation.,Illustration: EuroAsia Airlines purchases an airplane for 100,000,000 on January 1, 2011. The airplane has a useful life of 20 years and a residual value of 0. EuroAsia u
15、ses the straight-line method of depreciation for all its airplanes. EuroAsia identifies the following components, amounts, and useful lives.,Component Depreciation,Illustration 11-8,Computation of depreciation expense for EuroAsia for 2011.,Depreciation - Method of Cost Allocation,LO 4 Explain compo
16、nent depreciation.,Illustration 11-9,Depreciation Expense 8,600,000Accumulated DepreciationAirplane 8,600,000,Depreciation journal entry for 2011.,Depreciation - Method of Cost Allocation,LO 4 Explain component depreciation.,Special Depreciation Issues,How should companies compute depreciation for partial periods? Does depreciation provide for the replacement of assets? How should companies handle revisions in depreciation rates?,Depreciation - Method of Cost Allocation,
