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MU ACC 221 - Asset Depreciation
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ACC 221 1st Edition Lecture 23 Outline of Last Lecture- Section 22: Fixed Assets Review Fixed Assetso Dollar value we put into assetso Operating costs and expenseso Grey area Outline of Current Lecture - Section 23: Asset Depreciation Depreciationo Overview Straight Line Depreciationo Allocates evenly over time Double Declining Balance Methodo Front Loadedo Depreciation Factoro Adjusting Entry Activity Based Depreciationo Depreciation based on Activity Removing Assetso No gain or losso Gain on saleo Loss on saleCurrent Lecture- Section 23: Asset Depreciation Depreciationo 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 expenseo Temporary account, emptied into retained earnings as an expense at the end of the accounting cycle- Book valueo Is a calculated cost found based on the balance sheeto 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 depreciationo 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 advantageo 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 depreciationo 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 depreciationo 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 assetso 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


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MU ACC 221 - Asset Depreciation

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