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1、PLANT ASSETS,CHAPTER 16,Long-term assets,Long-term assets,Tangible assets,Natural resources,Intangible assets,e.g. plant, buildings, and equipment,Tangible assets,Tangible assets,Fixed assets,Plant assets,Plant assets are remained for operations of business, not for resale. The useful life of plant
2、assets is more than one year.,Depreciable asset,The value of plant assets may decline due to general wear and tear.,A decline in revenue-producing ability may also occur because of obsolescence.,Depreciation,Under the matching rule, the cost of plant assets must be allocated to all the periods over
3、their useful life, and must be done in a “systematic and rational“ manner.,1 year,2 year,Depreciation,Before computing depreciation, its essential to determine,The cost,Residual value,Depreciable cost,Estimated useful life,Cost,Acquisition cost,The cost of plant asset,Original cost,=,=,It includes a
4、ll expenditures reasonable and necessary to get the plant asset in place and available for use.,Cost,If a plant asset is acquired for cash, the acquisition cost consist of:,the cash paid for the asset,expenditures for packing,freight,insurance in transit,installation,testing,value added tax,other ne
5、cessary related costs,Cost,If a plant asset is acquired by self-construction the acquisition cost consist of :,Direct labor,direct materials,direct machinery,equipment cost,Other expenses incurred in the course of construction,Cost,If a plant asset is acquired from donation the acquisition value inc
6、ludes :,fair value,all the expenses incurred during the period when the donation is received,Fair value refers to the amount which is agreed by two sides that are familiar with the transaction.,Cost,If a plant asset is purchased on credit the interests are not included in cost, but as expense for th
7、is period.,However, if the assets are constructed, the interests during the construction should be calculated as part of cost of the asset.,Residual value,The residual value of an asset is its estimated net scrap, salvage, or trade-in value as of the estimated date of disposal.,Salvage value and dis
8、posal value are other terms used to stand for residual value.,Depreciable cost,The cost of an asset,Residual value,=,Depreciable value,For example, if furnitures cost is $10,000 and its residual value is $4,000, its depreciable cost will be $6,000.,Estimated useful life,Accounting considers estimate
9、d useful life as the depreciation years because deterioration and obsolescence are considered as well as wear and tear when a plant asset is depreciated.,Estimated economic useful life,Estimated useful life,Estimated useful life,Physical useful life,Estimated useful life,For example, a computer can
10、be used for more than five years regardless to the out-of-dated.,However, its estimated useful life may be only two years because the new type is put into use instead of the old one.,Methods of Computing Depreciation,Straight-line Method Production Method Accelerated Methods,Straight-line Method,Met
11、hod,1,Straight-line Method,Straight-line Method,Under this method, an equal amount of depreciation expense is allocated to each period of the assets useful life.,Straight-line method is also called average-years method.,Straight-line Method,f = ax + b x = (f b)/a,“x” stands for annual depreciation t
12、hat we want to know.,“f” refers to acquisition cost.,“b” is salvage value.,“a” is estimated useful life.,In mathematics, the formula of a straight line is,Straight-line Method,Formula,Annual Depreciation,=,Acquisition Cost Salvage Value,Years of Useful life,Straight-line Method,Now, lets look at an
13、example ,Straight-line Method,On March 7, the George Ross Advertising Agency purchased art equipment and office equipment for$2,000 and $5,300 respectively.,Suppose that the George Ross Advertising Agency estimates that the art equipment and office equipment will last for five years and the salvage
14、will be worthless at the end of the useful life.,Straight-line Method,The calculation is as follows:,Annual Depreciation for Photocopy Equipment,=,($2,000-0)/5,=,$400,Annual Depreciation for Office Equipment,=,($5,300 - 0)/5,=,$1,060,Straight-line Method,Monthly Depreciation for Photocopy Equipment,
15、=,$400/12,=,$33.3,Monthly Depreciation for Office Equipment,Monthly Depreciation = Annual Depreciation/12,=,$1,060/12,=,$88.3,Straight-line Method,Shortcomings,It pays more attention to the useful time than the useful Condition.,And allocate equal amount to each period regardless to the level of wea
16、r and tear that the asset suffers.,Production Method,Method,2,Production Method,Production Method,Production method allocates equal portion to the products.,Formula,Depreciation per Unit,=,Acquisition Cost Salvage Value,Estimated Production,Production Method,Now, lets look at an example ,Production Method,A photocopier can copy about 100 thousand pieces of paper with a 5,000-dollar acquisition cost and 500-dollar salvage value.,Depreciation per Unit,=,
