Slides Depr. & Prov. Uncoll. Accounts

8/18/2019 Slides Depr. & Prov. Uncoll. Accounts

1/19

Joaquín Uríbarri

Depreciation

MATCHINGPRINCIPLE

DEPRECIATION

The cost of a long-lived asset mst !eallocated as an e"#ense in the same#e$iod that $evenes a$e gene$ated !%its se&

CONCEPT' The #$ocess of allocatingthe cost of !ildings and e(i#mentove$ thei$ #$odctive life

Land is the onl% long-lived assetthat is not de#$eciated' it isconside$ed to have an nlimitedlife


2/19

Joaquín Uríbarri

What is NOT depreciation

It is not a process of determining the current MARKET VALUE

of an asset

it is not a process used as a !A"# $E%ERAT&R' a(though as an e)pense it *i(( ha+e an indirect impact, the reduction

of net income *i(( reduce pa-ment in ta)es and di+idends

It is not a process of generating .retained funds/ in order to

rep(ace the asset at the end of its usefu( (ife


3/19

Joaquín Uríbarri

Depreciation: the accounting process

A))ET)

E(i#ment

01'111 Acquisitionor production cost

Accmlatedde#$eciation

!ontra2account

31'111

E*PEN)E)

De#$eciation e"#ense

31'111

Net !oo+ vale

Cost less accmlated de#$eciation

01'111 4 31'111 5 61'111


4/19

Joaquín Uríbarri

Depreciation methods

Need to +no,

Ac(isition o$ #$odction cost

sefl life .estimation/

Residal .salvage/ vale.estimation/

ALTERNATI0E METHOD)

)t$aight line

nits of #$odction

Declining !alance


5/19

Joaquín Uríbarri

"traight2Line Method

!ost 2 Residua( Va(ueUsefu( Life in 7ears

8epreciationE)pense per 7ear

5

At the beginning of the -ear' "outh*est purchased groundequipment for 9:;'011 cash The equipment has an estimatedusefu( (ife of < -ears and an estimated residua( +a(ue of 9;'011

De#$eciation

E"#ense #e$ 1ea$ 2

De#$eciation

E"#ense #e$ 1ea$ 2 3456555

3746855 - 346855

9 %ea$s


6/19

Joaquín Uríbarri

De#$eciation Accmlated Accmlated -nde#$eciated

E"#ense De#$eciation De#$eciation :alance

1ea$ .de!it/ .c$edit/ :alance .!oo+ vale/

7468553

; 4565553 4565553 4565553


7/19

Joaquín Uríbarri

Units2of2=roduction Method

De#$eciation Rate

2 Cost - Residal 0aleLife in nits of P$odction

)te# ;'

)te# 4'

De#$eciation E"#ense

2 De#$eciation Rate

=

Nm!e$ of

nits P$odcedfo$ the 1ea$

At the beginning of the -ear' "outh*est purchased ground

equipment for 9:;'011 cash The equipment has a 311'111mi(e usefu( (ife and an estimated residua( +a(ue of 9;'011

If the equipment is used


8/19

Joaquín Uríbarri

Units2of2=roduction Method

3746855 - 346855;556555 miles

2 3&75 #e$ mileDe#$eciation Rate

2

)te# ;'

)te# 4'

3&75 #e$ mile = 956555 miles 23;>6555

De#$eciation E"#ense

2

Residal 0ale


9/19

Joaquín Uríbarri

Acquisition and 8ep(etion of %atura(Resources

E"am#les' oil6 coal6 goldE"am#les' oil6 coal6 gold

E)tracted fromthe natura(

en+ironment

A noncurrentasset presented

at cost (essaccumu(ated

dep(etion

Tota( cost of asset is the cost

of acquisition' e)p(oration'

and de+e(opment

Tota( cost isa((ocated o+er

periods benefitedb- means of

dep(etion

De#letion is li+e nits-of-#$odction de#$eciation&


10/19

Joaquín Uríbarri

The nit de#letion $ate is calclated as follo,s'

Estimated Reco+erab(e Units

Acquisition and Residua(8e+e(opment !ost Va(ue ?

De#letioncost

Invento$%fo$ sale nsold

Invento$%

Cost of goods sold

De#letion cost fo$ a #e$iod is'

NIT DEPLETION

RATE

NM:ER O@ NIT)

E*TRACTED IN PERIOD?

Acquisition and 8ep(etion of %atura(Resources


11/19

Joaquín Uríbarri

Acce(erated 8epreciation

De#$eciationDe#$eciation Re#ai$ Re#ai$

E"#enseE"#ense E"#enseE"#enseEa$l% 1ea$sEa$l% 1ea$s HighHigh Lo,Lo,

Late$ 1ea$sLate$ 1ea$s Lo,Lo, HighHigh

Accele$ated de#$eciation matches highe$de#$eciation e"#ense ,ith highe$ $evenesin the ea$l% %ea$s of an assets sefl life

,hen the asset is mo$e efficient&


12/19

Joaquín Uríbarri

8ec(ining2@a(ance Method

Annal

De#$eciatione"#ense

Net

:oo+0ale Bsefl Life in 1ea$s 4

2 =

!ost 4 Accumu(ated 8epreciation

8ec(ining ba(ance rateof ; is doub(e2dec(ining2

ba(ance 88@B rate

Annal com#tation igno$es $esidal vale&Annal com#tation igno$es $esidal vale&

At the beginning of the -ear' "outh*est purchased equipmentfor 9:;'011 cash The equipment has an estimated usefu((ife of < -ears and an estimated residua( +a(ue of 9;'011

!a(cu(ate the depreciation e)pense for the first t*o -ears


13/19

Joaquín Uríbarri

AnnalDe#$eciation

e"#ense

Net:oo+0ale

Bsefl Life in 1ea$s 4

2 =

B 3746855 = 9 %ea$s 4

2 3

8ec(ining2@a(ance Method

1ea$ ; De#$eciation'

1ea$ 4 De#$eciation'


14/19

Joaquín Uríbarri

De#$eciation Accmlated -nde#$eciated

E"#ense De#$eciation :alance

1ea$ .de!it/ :alance .!oo+ vale/

7468553

; >C 886887 76C


15/19

Joaquín Uríbarri

8epreciation e)pense is (imited to the amount thatreduces booC +a(ue to the estimated residua( +a(ue

De#$eciation Accmlated -nde#$eciated

E"#ense De#$eciation :alance

1ea$ .de!it/ :alance .!oo+ vale/

7468553

; >C 886887 76C


16/19

Joaquín Uríbarri

Internationa( =erspecti+eDIR"Measurement @asis for =ropert-' =(ant

and Equipment

IR" permit companies to+a(ue propert-' p(ant' and

equipment at historica( costor to re+a(ue them to theirfair +a(ue as of the ba(ance

sheet date

Under $AA=' re+a(uation of

propert-' p(ant' andequipment to fair +a(ue is

prohibited

U" $AA= and IR" differ *ith respect to the measurementbasis for propert-' p(ant and equipment on the ba(ance sheet


17/19

Joaquín Uríbarri

Provision for uncollectible accounts (i)

MATCHINGPRINCIPLE

Reco$ding of !ad de!t e"#ense in thesame #e$iod in ,hich the sales a$e made

PRO0I)ION

E)TIMATION of the e"#ected amont of!ad de!ts& e ,ill not +no, it fo$ s$e

ntil the follo,ing #e$iod

TO )TEP)

;& Recogniing the estimation of !ad de!t at the endof the #e$iod&

4& Doing the adFstment .,$iting off/ in the follo,ing#e$iod6 ,hen ,e +no, the $eal amont of !ad de!t


18/19

Joaquín Uríbarri

Provision for uncollectible accounts (ii)

)TEP ONE

Acconts$eceiva!le

F1'111

P$ovision fo$ do!tfl acconts

6'111

!ontra2account

A))ET)

Estimation of the bad debt

*e maCe at the end of theperiod, 0G of the accountsrecei+ab(e in this e)amp(e

E*PEN)E)

6'111

:ad de!te"#ense Net

AccontsReceiva!le

2

G$oss acconts

$eceiva!le

- P$ovision fo$ do!tfl acconts


19/19

Joaquín Uríbarri

Provision for uncollectible accounts (iii)

)TEP TO

Acconts$eceiva!le

F1'111

P$ovision fo$ Do!tfl acconts

6'111

A))ET)

Th$oghot the follo,ing %ea$6 ,hen ,e havece$taint% that the cstome$ ,ill not #a%6 ,e$eco$d the ,$ite-off of the !ad de!t

6'111 6'111 The$e isNO E@@ECTon theINCOME)TATEMENT

Documents

Slides Depr. & Prov. Uncoll. Accounts