Financial Accounting
John J. Wild
Sixth Edition
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 08
Reporting and Analyzing
Long-Term Assets
Conceptual Learning Objectives
C1: Explain the cost principle for
computing the cost of plant assets.
C2: Distinguish between revenue and
capital expenditures, and account for
them.
C3: Explain depreciation for partial years
and changes in estimates.
8-3
Analytical Learning Objectives
A1: Compute total asset turnover and
apply it to analyze a company’s use
of assets.
8-4
Procedural Learning Objectives
P1: Compute and record depreciation using the
straight-line, units-of-production, and decliningbalance methods.
P2: Account for asset disposal through discarding or
selling an asset.
P3: Account for natural resource assets and their
depletion.
P4: Account for intangible assets.
P5: Appendix 8A – Account for asset exchanges (see
text for details).
8-5
C1
Plant Assets
Tangible in Nature
Actively Used in Operations
Expected to Benefit Future Periods
Called Property, Plant, & Equipment
8-6
C1
Plant Assets
Acquisition
1. Compute cost.
Use
2. Allocate cost to periods
benefited.
3. Account for subsequent
expenditures.
Disposal
4. Record disposal.
8-7
P1
Depreciation
Depreciation is the process of allocating
the cost of a plant asset to expense in the
accounting periods benefiting from its use.
Balance Sheet
Acquisition
Cost
(Unused)
Income Statement
Cost
Allocation
Expense
(Used)
8-8
P1
Depreciation Methods
1.
Straight-line
2.
Units-of-production
3.
Declining-balance
8-9
P1
Straight-Line Method
Depreciation
=
Expense for Period
Depreciation
=
Expense per Year
Cost - Salvage Value
Useful life
$50,000 - $5,000
= $9,000
5 years
Depreciation Expense
Accumulated Depreciation - Equipment
Dr.
9,000
Cr.
9,000
To record annual depreciation
8-10
P1
Units-of-Production Method
Step 1:
Depreciation
Per Unit
=
Step 2:
Depreciation
Expense
=
Cost - Salvage Value
Total Units of Production
Number of
Depreciation
× Units Produced
Per Unit
in the Period
8-11
P1
Double-Declining-Balance Method
Step 1:
Straight-line
= 100 % ÷ Useful life = 100% ÷ 5 = 20%
rate
Step 2:
Double-decliningbalance rate = 2 × Straight-line rate = 2 × 20% =
40%
Step 3:
Depreciation
=
expense
DoubleBeginning period
×
decliningbook value
balance rate
40% × $50,000 = $20,000 for 2011
8-12
P2
Disposals of Plant Assets
Update depreciation
to the date of disposal.
Journalize disposal by:
Recording cash
received (debit)
or paid (credit).
Removing accumulated
depreciation (debit).
Recording a
gain (credit)
or loss (debit).
Removing the
asset cost (credit).
8-13
P4
Intangible Assets
Noncurrent assets
without physical
substance.
Often provide
exclusive rights
or privileges.
Intangible
Assets
Useful life is
often difficult
to determine.
Usually acquired
for operational
use.
8-14
End of Chapter 08
8-15