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AC113 Accounting for Non-Accounting Majors
Seminar: Unit 8Super Bowl Sunday
Emil Koren, CPA, MBA
Welcome• Introduction• Fixed Assets• Revenue vs. Capital Expenditures• Depreciation
– Straight Line Method– Double Declining Balance Method
• Disposal of Fixed Assets• Natural Resources• Intangible Assets• Exercises E7-2 and E7-10
Introductions
• Please read Chapter 7• Read and study the Vocabulary for this Unit• Post to the Discussion question• Do the Assignment• Take the Quiz
Fixed Assets
Useful life of over one yearExist physically-tangibleOwned and used in normal operationsNot offered for re-sale
Revenue vs. Capital Expenditures
• Revenue Expenditure• Ordinary repairs• Ordinary maintenance
• Capital Expenditures• Asset Improvements• Adds service value to asset
• Extraordinary repair• Extends assets useful life
Depreciation• Systematic method to record the expense of an asset over its
useful life• Need:– Cost– Expected useful life– Estimated residual value
• Depreciation Expense– Expense Account
• Accumulated Depreciation– Contra Asset– The total of all depreciation to date
Straight Line Method
Cost – Residual Value/ Useful Life
Double Declining Balance Method
• Determine Straight line rate• Double the straight line rate• Use this number to multiply the cost (Book Value)of
the asset to get to first year depreciation• Reduce the book value by the depreciation• Use the doubled straight line rate and multiply by
the NEW book value to get to next years depreciation.
• Continue process into future years
Disposal of Fixed Assets
• Book Value = Cost less Accumulated Depreciation
• Discarding Fixed Assets– Determine Book Value – This is the loss
• Selling Fixed asset– Determine Book Value – The difference is a gain or
loss on sale
Natural Resources
• Depletion Rate• Cost of Natural Resource/Estimated units of
that Resource
• Natural Resources include:
Intangible Assets
Right to use or profit from an asset or idea• Patents– Right to exclusive manufacturing for 20 years
• Copyrights– Right to publish and sell for life plus 70 years
• Trademarks– Rights to use for 10 years-renewable
• Goodwill– Excess of purchase price over cost of an asset
Exercise 7-2
• Tree cutting, land clearing, grading• Part of the cost of the Land?• Should they be depreciated
Answer:E7-2
• Yes! All expenditures incurred for purpose of making the land suitable should be recorded as part of the land
• No! Land is not depreciated
Exercise 7-10
• Storage Tank – Cost $172,000– Residual Value $20,000
• Depreciation-first two years– Straight Line– Double Declining Balance
Answer:E7-10
• 172,000-20,000 = $152,000• $152,000/8 = $19,000
• 1/8 = 0.125 0.125 X 2 = 0.25 or 25%• Year 1: 25% X $172,000 = $43,000• Year 2: 172,000 – 43,000 = $129,000• 25% X 129,000 = $32,250
Questions and Comments
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