Escolar Documentos
Profissional Documentos
Cultura Documentos
Definition
Plant assets
Tangible
Include land, buildings and equipment
Intangible assets
Carry special rights without physical substance
Include patents, copyrights and trademarks
Related Expense
Account
(Balance Sheet)
(Income Statement)
Plant Assets
Land
None
Depreciation
Depreciation
Land Improvements
Depreciation
Natural Resources
Depletion
Intangibles
Amortization
Inc
i
l Co denta
mu sts
s
cap t be
ital
d
ize
Land Improvements
Fencing, paving,
security systems,
lighting
Machinery & Equipment
Purchase price,
Insurance in transit, sales
taxes, installation
Lump-Sum Purchases
OTHER CONSIDERATIONS
Capital Expenditure
Capital Expenditure
Increase capacity or
extend life
Examples:
Major overhaul
Building additions
vs.
Immediate Expense
Immediate Expense
Maintain or restore to
working order
Examples:
Minor repairs
Painting
Depreciation
Depreciation is NOT:
a process of valuation
based on market value
decline
a method of setting
aside cash to replace
assets
Production-units method
28 June 2011
28 June 2011
10
Impact of Depreciation
Each year:
Accumulated Depreciation increases
Book value decreases
Book value = Cost minus
accumulated depreciation
Considerations in Selecting a
Depreciation Method
Matching
Simplicity
Record-keeping costs
Tax
Accounts
Accumulated depreciation
Loss on disposal of plant asset
Plant asset (equipment, bldg)
Debit
Credit
GAIN
Income Statement account
Similar to revenue; increases
net income
LOSS
Income Statement account
Similar to an expense; decreases
net income
JOURNAL
Date
Accounts
Debit
Cash
Accumulated Depreciation
Loss on sale of equipment
Equipment
Record loss on sale of equipment
Cash
Accumulated Depreciation
Equipment
Gain on sale of equipment
Record gain on sale of equipment
Credit
$ 8,700
Accumulated depreciation
2004 ($8,700 x 2/5)
$ 3,480
$ 2,088
January - September
x 9 /12
$1,566 $5,046
$3,654
Cash received
$2,500
Loss on sale
$1,154
JOURNAL
Date
Accounts
Debit
Cash
$2,500
Accumulated Depreciation
$5,046
$1,154
Equipment
Record loss on sale of equipment
Credit
$8,700
ACCOUNTING ON RETIREMENT
/DISPOSAL
Any profit/loss arising from retirement or disposal of fixed
assets should be dealt as below:
-Losses arising from retirement or gains/losses arising from
disposal of a fixed asset which is carried at cost should be
recognised in the profit and loss account.
-Where a revalued item of fixed asset is disposed off, any loss
or gain should be charged or credited to the profit and loss
account. However, to the extent that such loss is related to an
upward revaluation which has not been subsequently reversed
or utilised, it may be charged directly to that account.
Natural Resources
Accounts
Depletion Expense
Accumulated Depletion
Debit
Credit
$$,$$$
$$,$$$
Intangible Assets
Categories of Intangibles
Indefinite Lives
Not amortized
Tested annually for loss in value
Specific Intangibles
Patents
Federal grants that give
holder exclusive right
to produce and sell an
invention for 20 years
Trademarks &
Trade Names
Distinctive identification of
product or service; a logo
or catch phrase
Copyrights
Exclusive right to sell a
book, music, file or other
work of art; lasts for the life
of the author + 70 years
Franchises & Licenses
Right to sell a product or
service with specific
Conditions, such as chain
restaurants
Goodwill
$18
$10
Long-term assets
$15
Total liabilities
Goodwill
($24)
$1
$17
JOURNAL
Date
Accounts
Debit
Credit
Current assets
$10
Long-term assets
$15
Goodwill
$17
Total liabilities
$24
Cash
$18
Investing section
Purchases of plant assets and intangibles result in
an outflow of cash
Sales results in inflow of cash
DISCLOSURE
Depreciation rates (only if they are different from the principal rates
specified in the statute governing the enterprise.)