Principle of Accounting

Slide 9-1
Chapter
Plant Assets, Natural Resources, and Intangible Assets

Financial Accounting, IFRS Edition Weygandt Kimmel Kieso
Slide 9-2
Study Objectives
1. 2. 3. 4. 5. Describe how the cost principle applies to plant assets. Explain the concept of depreciation. Compute periodic depreciation using different methods. Describe the procedure for revising periodic depreciation. Distinguish between revenue and capital expenditures, and explain the entries for each.
6.
7. 8. 9.
Slide 9-3
Explain how to account for the disposal of a plant asset.

Compute periodic depletion of extractable natural resources. Explain the basic issues related to accounting for intangible assets. Indicate how plant assets, natural resources, and intangible assets are reported.
Plant Assets
Natural Resources
Intangible Assets
Statement Presentation and Analysis

Presentation
Analysis
Determining the cost of plant assets

Depreciation Revaluation of plant assets Expenditures during useful life Plant asset disposals
Slide 9-4
Accounting for extractable natural resources

Financial statement presentation
Accounting for intangibles

Types of intangibles Research and development costs
Section 1 Plant Assets

Plant assets include land, land improvements, buildings, and equipment (machinery, furniture, tools). Major characteristics include:
Used in operations and not for resale. Long-term in nature and usually depreciated.
Possess physical substance. Referred to as property, plant, and equipment; plant and equipment; and fixed assets.
Slide 9-5
Section 1 Plant Assets

Illustration 9-1 Percentages of plant assets in relation to total assets
Slide 9-6
Determining the Cost of Plant Assets

Land
Includes all costs to acquire land and ready it for use.
Costs typically include: (1) purchase price;
(2) closing costs, such as title and attorneys fees;

(3) real estate brokers commissions; (4) costs of grading, filling, draining, and clearing; (5) assumption of any liens, mortgages, or encumbrances on the property.
Slide 9-7
SO 1 Describe how the cost principle applies to plant assets.

Illustration: Assume that Hayes Manufacturing Company acquires real estate at a cash cost of $100,000. The property contains an old warehouse that is razed at a net cost of $6,000
($7,500 in costs less $1,500 proceeds from salvaged materials).

Additional expenditures are the attorneys fee, $1,000, and the real estate brokers commission, $8,000. The cost of the land is
$115,000, computed as follows.

Required: Determine amount to be reported as the cost of the land.
Slide 9-8

Required: Determine amount to be reported as the cost of the land.
Land
Cash price of property of $100,000 Net removal cost of warehouse of $6,000
$100,000
6,000
Attorney's fees of $1,000

Real estate brokers commission of $8,000 Cost of Land
1,000
8,000 $115,000
Journal Entry
Land 115,000
Cash
Slide 9-9
115,000

Land Improvements
All expenditures necessary to make the improvements ready for their intended use.
Driveways, parking lots, fences, landscaping, and
underground sprinklers.
Limited useful lives. Expense (depreciate) the cost of land improvements over their useful lives.
Slide 9-10

Buildings
All costs related directly to purchase or construction.
Purchase costs:
Purchase price, closing costs and real estate brokers commission.
Remodeling and replacing or repairing the roof, floors, electrical wiring, and plumbing.
Construction costs:
Contract price plus payments for architects fees, building permits, and excavation costs.
Slide 9-11

Equipment
All costs incurred in acquiring the equipment and preparing it for use.
Costs typically include: purchase price, sales taxes, freight and handling charges, insurance on the equipment while in transit, assembling and installation costs, and costs of conducting trial runs.
Slide 9-12

Illustration: Assume Merten Company purchases factory machinery at a cash price of $50,000. Related expenditures are for sales taxes $3,000, insurance during shipping $500, and installation and testing $1,000. Determine amount to be reported as the cost of the machinery. Machinery Cash price Sales taxes Insurance during shipping $50,000 3,000 500
Installation and testing

Cost of Machinery
Slide 9-13
1,000
$54,500
Slide 9-14
Answer on notes page
Depreciation
Depreciation is the process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset.
Process of cost allocation, not asset valuation. Applies to land improvements, buildings, and equipment, not land. Depreciable, because the revenue-producing ability of asset will decline over the assets useful life.
Slide 9-15
SO 2 Explain the concept of depreciation.
Depreciation
Factors in Computing Depreciation
Illustration 9-6
Cost
Useful Life
Residual Value
Slide 9-16
SO 2 Explain the concept of depreciation.
Depreciation
Depreciation Methods
Objective is to select the method that best measures an assets contribution to revenue over its useful life.
Examples include:
(1) Straight-line method.

(2) Units-of-Activity method. (3) Declining-balance method.
Slide 9-17
SO 3 Compute periodic depreciation using different methods.
Depreciation
Illustration: Barbs Florists purchased a small delivery truck on January 1, 2011.
Illustration 9-7
Required: Compute depreciation using the following. (a) Straight-Line (b) Units-of-Activity (c) Declining Balance.
Slide 9-18
Depreciation
Straight-Line
Expense is same amount for each year.
Depreciable cost - cost of the asset less its residual value. Illustration 9-8
Slide 9-19
Depreciation
Illustration: (Straight-Line Method)
Illustration 9-9
Year
Depreciable Cost
Rate
Annual Expense
Accum. Deprec.
Book Value
2011 2012 2013 2014 2015

2011 Journal Entry
Slide 9-20
$ 12,000 12,000 12,000 12,000 12,000
20% 20 20 20 20
$ 2,400 2,400 2,400 2,400 2,400
$ 2,400 4,800 7,200 9,600 12,000 2,400
$ 10,600 8,200 5,800 3,400 1,000
Depreciation expense Accumulated depreciation
2,400
Depreciation
Units-of-Activity
Companies estimate total units of activity to calculate depreciation cost per unit.
Expense varies based on units of activity. Depreciable cost is cost less residual value.
Illustration 9-10
Slide 9-21
Depreciation
Illustration: (Units-of-Activity Method)
Units
of Year Activity x Cost / Unit = Annual Depreciation Accumulated Expense Depreciation
Illustration 9-11
Book Value
2011 2012
15,000 30,000
$ 0.12 0.12
$ 1,800 3,600
$ 1,800 5,400
$ 11,200 7,600
2013
2014 2015
2011 Journal Entry
Slide 9-22
20,000
25,000 10,000
0.12
0.12 0.12
2,400
3,000 1,200
7,800
10,800 12,000 1,800
5,200
2,200 1,000
1,800
Depreciation
Declining-Balance
Decreasing annual depreciation expense over the assets useful life. Declining-balance rate is double the straight-line rate. Rate applied to book value.
Illustration 9-12
Slide 9-23
Depreciation
Illustration: (Declining-Balance Method)
Beginning Book value Declining Balance x Rate = Annual Deprec. Expense
Illustration 9-13
Year
Accum. Deprec.
Book Value
2011 2012 2013
13,000 7,800 4,680
40% 40 40
$ 5,200 3,120 1,872
$ 5,200 8,320 10,192
$ 7,800 4,680 2,808
2014
2015
2011 Journal Entry
Slide 9-24
2,808
1,685
40
40
1,123
685*
11,315
12,000 5,200
1,685
1,000
5,200
* Computation of $674 ($1,685 x 40%) is adjusted to $685.
Depreciation
Comparison of Methods
Illustration 9-14
Illustration 9-15
Slide 9-25
Depreciation Review Question

Depreciation is a process of: a. valuation. b. cost allocation. c. cash accumulation. d. appraisal.
Slide 9-26
Depreciation for Partial Year

The following four slides are included to illustrate the calculation of partial-year depreciation expense.
The amounts are consistent with the previous slides

illustrating the calculation of depreciation expense.
Slide 9-27

Illustration: Barbs Florists purchased a small delivery truck on October 1, 2011.
Illustration 9-7
Required: Compute depreciation using the following. (a) Straight-Line (b) Units-of-Activity (c) Declining Balance.
Slide 9-28

Illustration: (Straight-line Method)
Depreciable Cost $ 12,000 12,000 12,000 12,000 12,000 12,000 Annual Expense $ 2,400 2,400 2,400 2,400 2,400 2,400 Partial Year 3/12 Current Year Expense = $ 600 2,400 2,400 2,400 2,400 = 1,800 $ 12,000 Accum. Deprec. $ 600 3,000 5,400 7,800 10,200 12,000
Year 2011 2012 2013 2014 2015 2016
x x x x x x
Rate 20% 20% 20% 20% 20% 20%
= = = = = =
9/12
Journal entry: 2011 Depreciation expense Accumultated depreciation 600 600
Slide 9-29

Illustration: (Units-of-Activity Method)
Hours Year Used x Cost / Unit = Annual Expense Accum. Deprec.
Illustration 9-12
Book Value
2011 2012 2013
15,000 30,000 20,000
$ 0.12 0.12 0.12
$ 1,800 3,600 2,400
$ 1,800 5,400 7,800
$ 11,200 7,600 5,200
2014
2015
2011 Journal Entry
Slide 9-30
25,000
10,000
0.12
0.12
3,000
1,200
10,800
12,000
2,200
1,000
Depreciation expense
Accumulated depreciation
1,800
1,800

Illustration: (Declining-Balance Method)
Beginning Book Value $ 13,000 11,700 7,020 4,212 2,527 1,516 Declining Balance Rate 40% 40% 40% 40% 40% 40% Annual Expense $ 5,200 x 4,680 2,808 1,685 1,011 607 Partial Year 3/12 Current Year Expense = $ 1,300 4,680 2,808 1,685 1,011 516 $ 12,000 Accum. Deprec. $ 1,300 5,980 8,788 10,473 11,484 12,000
Year 2011 2012 2013 2014 2015 2016
x x x x x x
= = = = = =
Plug
Journal entry: 2011 Depreciation expense Accumultated depreciation 1,300 1,300
Slide 9-31
Depreciation
Depreciation and Income Taxes
Tax laws often do not require the taxpayer to use the same depreciation method on the tax return that is used in preparing financial statements. Many corporations use straight-line in their financial statements to maximize net income. At the same time, they use an accelerated-depreciation method on their tax returns to minimize their income taxes.
Slide 9-32
Depreciation
Revising Periodic Depreciation
Accounted for in the period of change and future
periods (Change in Estimate).

Not handled retrospectively. Not considered error.
Slide 9-33
SO 4 Describe the procedure for revising periodic depreciation.
Depreciation
Illustration: Assume that Barbs Florists decides on January 1, 2014, to extend the useful life of the truck one year because of its excellent condition. The company has used the straight-line method to depreciate the asset to date, and book value is $5,800 ($13,000 - $7,200). Questions: 1. What is the journal entry to correct the prior years depreciation? 2. Calculate the depreciation expense for 2014.
No Entry Required
Slide 9-34
Depreciation
Book value, 1/1/14 Residual value Depreciable cost Useful life (revised) Annual depreciation $5,800 - 1,000 / 4,800 3 years $ 1,600
Illustration 9-17
First, establish Book Value at the date of change in estimate.
Journal entry for 2014
Depreciation expense
1,600
1,600
Slide 9-35
Depreciation Review Question

When there is a change in estimated depreciation: a. previous depreciation should be corrected. b. current and future years depreciation should be revised. c. only future years depreciation should be revised.
d. None of the above.
Slide 9-36
Revaluation of Plant Assets

IFRS allows revaluation of plant assets to fair value
If revaluation is used, it must be applied to all assets in a class of assets. Assets that are experiencing rapid price changes must be revalued on an annual basis, otherwise less
frequent revaluation is acceptable.
Slide 9-37

Illustration: Pernice Company applies revaluation to plant assets with a carrying value of $1,000,000, a useful life of 5 years, and no residual value. Pernice makes the following journal entries in year 1, assuming straight-line depreciation. Depreciation expense Accumulated depreciation 200,000 200,000
After this entry, Pernices plant assets have a carrying amount of $800,000 ($1,000,000 - $200,000).
Slide 9-38

Illustration: At the end of year 1, independent appraisers determine that the asset has a fair value of $850,000. To report the plant assets at fair value, Pernice makes the following entry. Accumulated depreciation Plant assets Revaluation surplus 200,000 150,000 50,000
Revaluation surplus is an example of an item reported as other comprehensive income, as discussed in Chapter 5.
Slide 9-39

Pernice now reports the following information in its statement of financial position at the end of year 1.
Illustration 9-18
$850,000 is the new basis of the asset. Pernice reports depreciation expense of $200,000 in the income statement and $50,000 in other comprehensive income. Depreciation in year 2 will be $212,500 ($850,000 / 4).
Slide 9-40
Expenditures During Useful Life

Ordinary Repairs - expenditures to maintain the operating
efficiency and productive life of the unit. Debit - Repair (or Maintenance) Expense.
Referred to as revenue expenditures.
Additions and Improvements - costs incurred to increase

the operating efficiency, productive capacity, or useful life of a plant asset. Debit - the plant asset affected. Referred to as capital expenditures.
Slide 9-41
SO 5 Distinguish between revenue and capital expenditures, and explain the entries for each.
Plant Asset Disposals

Companies dispose of plant assets in three ways Retirement, Sale, or Exchange (appendix).
Illustration 9-19
Record depreciation up to the date of disposal.

Eliminate asset by (1) debiting Accumulated Depreciation, and (2) crediting the asset account.
Slide 9-42
SO 6 Explain how to account for the disposal of a plant asset.
Plant Asset Disposals - Retirement

Retirement of Plant Assets
Illustration: Assume that Hobart Enterprises retires its computer printers, which cost $32,000. The accumulated depreciation on these printers is $32,000. The journal entry to record this retirement is: Accumulated depreciation Printing equipment 32,000 32,000
Question: What happens if a fully depreciated plant asset is still useful to the company?
Slide 9-43
Plant Asset Disposals - Retirement

Illustration: Assume that Sunset Company discards delivery equipment that cost $18,000 and has accumulated depreciation of $14,000. The journal entry is: Accumulated depreciation 14,000
Loss on disposal
Delivery equipment
4,000
18,000
Companies report a loss on disposal in the Other income and expense section of the income statement.
Slide 9-44
Plant Asset Disposals

Sale of Plant Assets
Compare the book value of the asset with the proceeds received from the sale.
If proceeds exceed the book value, a gain on disposal occurs. If proceeds are less than the book value, a loss on disposal occurs.
Slide 9-45
Plant Asset Disposals - Sale

Gain on Disposal
Illustration: Assume that on July 1, 2011, Wright Company sells office furniture for $16,000 cash. The office furniture originally cost $60,000. As of January 1, 2011, it had accumulated depreciation of $41,000. Depreciation for the first six months of 2011 is $8,000. Prepare the journal entry to record depreciation expense up to the date of sale. Depreciation expense
8,000
8,000
Slide 9-46

Illustration 9-20 Computation of gain on disposal
Illustration: Wright records the sale as follows. July 1 Cash Accumulated depreciation Office equipment Gain on disposal
Slide 9-47
16,000 49,000 60,000 5,000

Loss on Disposal
Illustration: Assume that instead of selling the office furniture for $16,000, Wright sells it for $9,000.
July 1 Cash 9,000
Illustration 9-21 Computation of loss on disposal
Office equipment Loss on disposal
Slide 9-48
49,000
60,000 5,000
Section 2 Natural Resources Natural resources consist of standing timber and resources extracted from the ground, such as oil, gas, and minerals.
Standing timber is considered a biological asset under IFRS. In the years before they are harvested, the recorded value of biological assets is adjusted to fair value each period.
Slide 9-49
SO 7 Compute periodic depletion of extractable natural resources.
Section 2 Natural Resources

IFRS defines extractive industries as those businesses involved in finding and removing natural resources located in or near the earths crust. Cost - price needed to acquire the resource and prepare it for its intended use.
Depletion - allocation of the cost to expense in a rational and systematic manner over the resources useful life.
Depletion is to natural resources as depreciation is to plant assets. Companies generally use units-of-activity method. Depletion generally is a function of the units extracted.
Slide 9-50
Section 2 Natural Resources

Illustration: Assume that Lane Coal Company invests $5 million in a mine estimated to have 10 million tons of coal and no salvage value. In the first year, Lane extracts and sells 800,000 tons of coal. Lane computes the depletion expense as follows: $5,000,000 10,000,000 = $.50 depletion cost per ton
$.50 x 800,000 = $400,000 depletion expense

Journal entry: Depletion expense Accumulated depletion
Slide 9-51
400,000 400,000
Financial Statement Presentation

Illustration 9-23 Statement presentation of accumulated depletion
Extracted resources that have not been sold are reported as inventory in the current assets section.
Slide 9-52
Section 3 Intangible Assets

Intangible assets are rights, privileges, and competitive advantages that do not possess physical substance. Intangible assets are categorized as having either a limited life or an indefinite life. Common types of intangibles:
Patents Copyrights Franchises or licenses Trademarks and trade names
Goodwill
IFRS permits revaluation of intangible assets to fair value, except for goodwill.
Slide 9-53
SO 8 Explain the basic issues related to accounting for intangible assets.
Types of Intangible Assets

Patents
Exclusive right to manufacture, sell, or otherwise control an invention for a specified number of years from the date of the grant.
Legal life in many countries is 20 years. Capitalize costs of purchasing a patent and amortize over its legal life or its useful life, whichever is shorter.
Legal fees incurred successfully defending a patent are capitalized to Patent account.
Slide 9-54
Accounting for Intangible Assets

Intangible assets are typically amortized on a straight-line basis.
Illustration: Assume that National Labs purchases a patent at a cost of $60,000. National estimates the useful life of the patent to be eight years. National records the annual amortization as follows. Amortization expense Patent 7,500 7,500
Slide 9-55

Copyrights
Give the owner the exclusive right to reproduce and sell an artistic or published work.
plays, literary works, musical works, pictures,
photographs, and video and audiovisual material.

Granted for the life of the creator plus a specified number of years, which can vary by country but is commonly 70 years. Capitalize costs of acquiring and defending it. Amortized to expense over useful life.
Slide 9-56

Trademarks and Trade Names
Word, phrase, jingle, or symbol that identifies a particular enterprise or product.
Wheaties, Game Boy, Frappuccino, Kleenex, Windows,
Coca-Cola, and Jetta. Registration provides a specified number of years of protection, which can vary by country, but is commonly 20 years.
Capitalize acquisition costs.

Renewed indefinitely, no amortization.
Slide 9-57

Franchises and Licenses
Contractual arrangement between a franchisor and a
franchisee.
BP (GBR), Taco Bell (USA), or Rent-A-Wreck (USA)
are franchises.
Franchise (or license) with a limited life should be amortized to expense over the life of the franchise.
Franchise with an indefinite life should be carried at cost

and not amortized.
Slide 9-58

Goodwill
Includes exceptional management, desirable location, good customer relations, skilled employees, high-quality products, etc.
Only recorded when an entire business is purchased. Goodwill is recorded as the excess of ... purchase price over the fair value of the identifiable net assets acquired. Internally created goodwill should not be capitalized.
Slide 9-59
Slide 9-60
Answer on notes page
Research and Development Costs

Frequently results in something that a company patents or copyrights such as:
new product, process, idea,
formula, composition, or
literary work.
Costs in the research phase are always expensed as incurred. Costs in the development phase are expensed until specific criteria are met, primarily that technological feasibility is achieved.
Slide 9-61

Presentation
Illustration 9-24
Slide 9-62
SO 9 Indicate how plant assets, natural resources, and intangible assets are reported.

Analysis
Illustration 9-25
Each dollar invested in assets produced in sales. If a company is using its assets efficiently, each investment in assets will create a high amount of sales.
SO 9 Indicate how plant assets, natural resources, and intangible assets are reported.
Slide 9-63
Understanding U.S. GAAP

Key Differences
As in IFRS, under GAAP, the costs associated with research and development are segregated into the two components. Costs in the research phase are always expensed under both IFRS and GAAP. Under GAAP, however, costs in the development phase are also always expensed. As shown in this chapter, under IFRS, development costs can be capitalized once technological feasibility is achieved.
IFRS permits revaluation of intangible assets (except for goodwill). GAAP prohibits revaluations of intangible assets. GAAP does not require component depreciation.
Slide 9-64

Key Differences
GAAP does not permit the use of revaluation accounting for property, plant, and equipment, which is allowed under IFRS.
Under both GAAP and IFRS, changes in the depreciation method used and changes in useful life are handled in current and future periods. Prior periods are not affected. GAAP recently conformed to IFRS in the accounting for changes in depreciation methods.
Slide 9-65

Key Differences
IFRS allows reversal of impairment losses when there has been a change in economic conditions or in the expected use of the asset. Under GAAP, impairment losses cannot be reversed for assets to be held and used; the impairment loss results in a new cost basis for the asset. IFRS and GAAP are similar in the accounting for impairments of assets held for disposal.
The accounting for exchanges of non-monetary assets has recently converged between IFRS and GAAP.
Slide 9-66

Looking to the Future
It is too early to say whether a converged conceptual framework will recommend fair value measurement (and revaluation accounting) for plant assets and intangibles. However, this is likely to be one of the more contentious issues, given the long-standing use of historical cost as a measurement basis in GAAP. The IASB and FASB have identified a project that would consider expanded recognition of internally generated intangible assets. IFRS permits more recognition of intangibles compared to GAAP. Thus, it will be challenging to develop converged standards for intangible assets, given the long-standing prohibition on capitalizing internally generated intangible assets and research and development in GAAP.
Slide 9-67
Exchange of Plant Assets
Appendix
Ordinarily, companies record a gain or loss on the
exchange of plant assets.

The rationale for recognizing a gain or loss is that most exchanges have commercial substance. An exchange has commercial substance if the future cash flows change as a result of the
exchange.
Slide 9-68
SO 10 Explain how to account for the exchange of plant assets.

Illustration: Roland Co. exchanged old trucks (cost $64,000 less $22,000 accumulated depreciation) plus cash of $17,000 for a new semi-truck. The old trucks had a fair value of $26,000.
Cost of old trucks Less: Accumulated depreciation Book value Fair value of old trucks Loss on disposal $64,000 22,000 42,000 26,000 $16,000
Loss Treatment
Fair value of old trucks Cash paid Cost of new semi-truck

Slide 9-69
$26,000 17,000 $43,000

Illustration: Roland Co. exchanged old trucks (cost $64,000 less $22,000 accumulated depreciation) plus cash of $17,000 for a new semi-truck. The old trucks had a fair market value of $26,000. Prepare the entry to record the exchange of assets by Roland Co.
Semi-truck Accumulated depreciation 43,000 22,000
Loss on disposal
Used trucks Cash
Slide 9-70
16,000
64,000 17,000

Illustration: Mark Express Delivery trades its old delivery equipment (cost $40,000 less $28,000 accumulated depreciation) for new delivery equipment. The old equipment had a fair value of $19,000. Mark also paid $3,000.
Cost of old equipment Less: Accumulated depreciation Book value Fair value of old equipment Gain on disposal $40,000 28,000 12,000 19,000 $ 7,000
Gain Treatment
Fair value of old equipment Cash paid Cost of new equipment

Slide 9-71
$19,000 3,000 $22,000

Illustration: Mark Express Delivery trades its old delivery equipment (cost $40,000 less $28,000 accumulated depreciation) for new delivery equipment. The old equipment had a fair value of $19,000. Mark also paid $3,000. Prepare the entry to record the exchange of assets by Mark Express.
Delivery equipment (new) Accumulated depreciation 22,000 28,000
Delivery equipment (used)

Gain on disposal Cash
Slide 9-72
40,000
7,000 3,000
Exchange of Plant Assets Review Question

In exchanges of assets in which the exchange has commercial substance: a. neither gains nor losses are recognized immediately. b. gains, but not losses, are recognized immediately. c. losses, but not gains, are recognized immediately.
d. both gains and losses are recognized immediately.
Slide 9-73
Copyright
Copyright 2011 John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that permitted in

Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the
Permissions Department, John Wiley & Sons, Inc. The purchaser

may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.
Slide 9-74

Principle of Accounting

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Slide 9-1

Plant Assets, Natural Resources, and Intangible Assets

Explain how to account for the disposal of a plant asset.

Plant Assets, Natural Resources, and Intangible Assets

Statement Presentation and Analysis

Determining the cost of plant assets

Accounting for extractable natural resources

Accounting for intangibles

Section 1 Plant Assets

Section 1 Plant Assets

Determining the Cost of Plant Assets

(2) closing costs, such as title and attorneys fees;

SO 1 Describe how the cost principle applies to plant assets.

Determining the Cost of Plant Assets

($7,500 in costs less $1,500 proceeds from salvaged materials).

$115,000, computed as follows.

SO 1 Describe how the cost principle applies to plant assets.

Determining the Cost of Plant Assets

Attorney's fees of $1,000

Determining the Cost of Plant Assets

SO 1 Describe how the cost principle applies to plant assets.

Determining the Cost of Plant Assets

SO 1 Describe how the cost principle applies to plant assets.

Determining the Cost of Plant Assets

SO 1 Describe how the cost principle applies to plant assets.

Determining the Cost of Plant Assets

Installation and testing

SO 1 Describe how the cost principle applies to plant assets.

Answer on notes page

SO 2 Explain the concept of depreciation.

SO 2 Explain the concept of depreciation.

(1) Straight-line method.

SO 3 Compute periodic depreciation using different methods.

SO 3 Compute periodic depreciation using different methods.

SO 3 Compute periodic depreciation using different methods.

2011 2012 2013 2014 2015

$ 12,000 12,000 12,000 12,000 12,000

$ 2,400 2,400 2,400 2,400 2,400

$ 2,400 4,800 7,200 9,600 12,000 2,400

$ 10,600 8,200 5,800 3,400 1,000

Depreciation expense Accumulated depreciation

SO 3 Compute periodic depreciation using different methods.

SO 3 Compute periodic depreciation using different methods.

Depreciation expense Accumulated depreciation

SO 3 Compute periodic depreciation using different methods.

SO 3 Compute periodic depreciation using different methods.

2011 2012 2013

13,000 7,800 4,680

$ 5,200 3,120 1,872

$ 5,200 8,320 10,192

$ 7,800 4,680 2,808

Depreciation expense Accumulated depreciation

* Computation of $674 ($1,685 x 40%) is adjusted to $685.

SO 3 Compute periodic depreciation using different methods.

Depreciation Review Question

SO 3 Compute periodic depreciation using different methods.

Depreciation for Partial Year

The amounts are consistent with the previous slides

SO 3 Compute periodic depreciation using different methods.

Depreciation for Partial Year

SO 3 Compute periodic depreciation using different methods.

Depreciation for Partial Year

Year 2011 2012 2013 2014 2015 2016