Supplement I

1
Supplement I
Fixed asset and Depreciation Methods ?????????
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Classification of Assets
Current Assets(????) are assets which can be
converted into Cash or consumed within one year
or the normal Operating cycle of the business
Fixed Assets (????)or long-term assets ,refer to
those relatively long-lived assets which are
held by a business for use in its operation
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Major Categories of Fixed Assets
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Depreciation Method of Plant Asset

• Straight-line method
• ???
• Sum- of-the- years-digits method
• ?????
• Double-declining-balance Method
• ???????

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Depreciation

• Book Value????
• Cost - Accumulated Depreciation
• Accumulated Depreciation????
• Represents the portion of an assets
• cost that has already been allocated to
  expense.
• Book value of last year salvage
• value

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Sum-of-the-Years-Digits Method
Depreciation in the early years of an assets
estimated useful life is higher than in later
years.
the years in reverse order The sum of number
of years
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Sum-of-the-Year-DigitsExample
On January 1, 2005, Bass Co. buys a new boat.
Bass Co. pays 24,000 for the boat. The boat has
an estimated residual value of 3,000 and an
estimated useful life of 5 years. Compute
depreciation for 2005 using the
Sum-of-Years-Digits method.
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Sum-of-the-Year-DigitsExample
On January 1, 2005, Bass Co. buys a new boat.
Bass Co. pays 24,000 for the boat. The boat has
an estimated residual value of 3,000 and an
estimated useful life of 5 years. Compute
depreciation for 2005 using the
Sum-of-the-Year-Digits method.
2005 Dep expense( Cost - Residual Value )Dep
Rate of 2005 (24000-3000)5/15 7000

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Sum-of-the-Year-DigitsExample
Compute depreciation for the rest of the boats
estimated useful life.
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Sum-of-the-Years-Digits BalanceGraph of
Depreciation Expense
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Accelerated Method

• Example on textbook ,p78

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Double-Declining BalanceExample
Depreciation in the early years of an assets
estimated useful life is higher than in later
years.
The double-declining balance accelerated
depreciation rate is 200 of the straight-line
depreciation rate of 1/Useful Life.
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Double-Declining BalanceExample
Depreciation in the early years of an assets
estimated useful life is higher than in later
years.
The book value at the beginning of the year
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Double-Declining BalanceExample
On January 1, 2005, Bass Co. buys a new boat.
Bass Co. pays 24,000 for the boat. The boat has
an estimated residual value of 3,000 and an
estimated useful life of 5 years. Compute
depreciation for 2005 using the double-declining
balance method.
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Double-Declining BalanceExample
On January 1, 2005, Bass Co. buys a new boat.
Bass Co. pays 24,000 for the boat. The boat has
an estimated residual value of 3,000 and an
estimated useful life of 5 years. Compute
depreciation for 2005 using the double-declining
balance method.
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Double-Declining BalanceExample
Compute depreciation for the rest of the boats
estimated useful life.
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Double-Declining BalanceExample
Compute depreciation for the rest of the boats
estimated useful life.
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Double-Declining BalanceExample
Compute depreciation for the rest of the boats
estimated useful life.
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Double-Declining BalanceExample
Total depreciation over the estimated useful life
of an asset is the same using either the
straight-line method or the declining-balance
method.
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Double-Declining BalanceGraph of Depreciation
Expense
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Accelerated Method

• Example on textbook,p79

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Double-Declining BalanceExample
Compute depreciation for the equipment.
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Double-Declining BalanceExample
Compute depreciation for the equipment.
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Exercise

• Jon Seceda furnace Corp. purchased machinery
  for 50,000 at the beginning of the year 1.It is
  estimated that it will have a useful life of 5
  years , residual value of 5000.compute the
  depreciation under the each of the following
  method (round to two decimal places)
• Sum-of-years-digits
• Double-declining balance

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Sum-of-the-Year-DigitsExample
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Double-Declining BalanceExample
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Exercise

• Jon SECEDA furnace corp. purchased machinery for
  315,000 on April 1,2004. It is estimated that it
  will have a useful life of 10 years , scrap value
  of 15000
• From the information given , compute the
  depreciation charge in 2004 under each of the
  following method( round to three decimal places)
• straight-line
• sum-of-years-digits
• Double-decline balance

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Exercise

• (315000-15000) 1/10 9/1222500
• (315000-15000)10/559/1240909.09
• (3150002/10 9/1247250

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Depreciation

• Book Value????
• Market Value/ fair Value
• ???? /????
• the price which the assets are exchanged in
  the market
• Book Value Market Value

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assignment

• Problems 2 ( p 81)
• Problems 1 ( p 80)