ACC 221 1st Edition Lecture 23 Outline of Last Lecture Section 22 Fixed Assets Review Fixed Assets o Dollar value we put into assets o Operating costs and expenses o Grey area Outline of Current Lecture Section 23 Asset Depreciation Depreciation o Overview Straight Line Depreciation o Allocates evenly over time Double Declining Balance Method o Front Loaded o Depreciation Factor o Adjusting Entry Activity Based Depreciation o Depreciation based on Activity Removing Assets o No gain or loss o Gain on sale o Loss on sale Current Lecture Section 23 Asset Depreciation Depreciation o Overview Depreciation allocation method to show the usage of assets and equipment by the company Three types Straight line depreciation Double declining balance depreciation method Activity based depreciation method Considerations These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Total value Estimated life Residual value o Residual value the amount that the asset will be worth after all of the usage has been allocated to depreciation an estimate of end worth Accounts Accumulated depreciation o Permanent account shows the total value of depreciation over time rolls over to next accounting period and builds upon itself Depreciation expense o Temporary account emptied into retained earnings as an expense at the end of the accounting cycle Book value o Is a calculated cost found based on the balance sheet o Original cost of asset accumulated depreciation Stop depreciation when book value residual value May use different types of depreciation for financial reporting and tax returns government does not regulate then like FIFO and LIFO Straight line depreciation o Allocates evenly over time Full cost residual value estimated life 110 000 10 000 5 years 20 000 Adjust to depreciate 20 000 per year Adjusting entry Dr depreciation expense Cr Accumulated depreciation Double declining balance method o Front loaded expenses are larger in your first years to gain a tax advantage o Depreciation factor 1 life of loan x 2 1 5 2 5 110 000 2 5 44 000 first year depreciation 66 000 2 5 26400 second year depreciation o Adjusting Ending and beginning balance on following year are the same Dr Depreciation expense Cr Accumulated depreciation Must know when to stop depreciating adjust the 5th year to get to the exact residual value cannot be above or below residual at the end Activity based depreciation o Depreciation based on usage Fully depreciated when reaching 100 000 miles Cost residual value life 110 000 5 000 100 000 miles 1 05 per mile 25 000 miles 1 05 26 250 depreciation in year 1 In final year stop depreciation when reach 100 000 miles even if you continue to drive the car Removing assets o No gain or loss Dr Cash amount equipment worth 66 000 Dr accumulated depreciation amount depreciated 44 000 Cr Equipment total 110 000 o Gain on sale Dr Cash 76 000 Dr Accumulated depreciation 44 000 Cr Equipment 110 000 Cr Gain on disposal on fixed assets 10 000 o Loss on sale Dr Cash 56 000 Dr Accumulated depreciation 44 000 Dr Loss on disposal of fixed assets 10 000 Cr Equipment 110 000
View Full Document
Unlocking...