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Plant Assets &

Depreciation
Khurram Nasir Plant Assets & Depreciation


What are Plant Assets???








Khurram Nasir Plant Assets & Depreciation
Major Categories of Plant Assets
Tangible Plant Assets
Plant Property Subject to Depreciation
Land

Intangible Assets

Natural Resources
Khurram Nasir Plant Assets & Depreciation
Accountable Events in the Lives of Plant
Assets
Acquisition

Depreciation

Sale/Disposal
Khurram Nasir Plant Assets & Depreciation
Acquisition of Plant Assets
List Price
Sales Tax
Transportation Charges
Cost of Installation and Set-up
Total
Khurram Nasir Plant Assets & Depreciation
Acquisition of Plant Assets
(Some Special Considerations)
Land
Land Improvements
Buildings
Equipment
Allocation of a Lump-Sum Purchase

Khurram Nasir Plant Assets & Depreciation
Allocation of a Lump-Sum Purchase
Value per % of Appraised Allocation of
Appraisal Value Cost
Land
Land Improvements
Building
Equipment
Total

Land
Land Improvements
Building
Equipment
Cash

Khurram Nasir Plant Assets & Depreciation


Capital Expenditures
Versus
Revenue Expenditures






Khurram Nasir Plant Assets & Depreciation


What is Depreciation???








Khurram Nasir Plant Assets & Depreciation
allocation of the cost of a tangible plant asset to
expense in the periods in which services are
received from the asset.



Matching Principle





Khurram Nasir Plant Assets & Depreciation
Causes of Depreciation
Physical Deterioration

Obsolescence
Khurram Nasir Plant Assets & Depreciation
Methods of Computing Depreciation
Straight-Line Depreciation
Accelerated Depreciation
The Declining-Balance Method
Double-Declining-Balance
150%-Declining Balance
MACRS

The Units-of-output Method
Sum-of-the-Years Digits
Decelerated Depreciation Methods
Khurram Nasir Plant Assets & Depreciation
Data for Illustrations
Cost $17,000
Estimated Residual Value $2,000
Estimated Useful Life 5 Years
Khurram Nasir Plant Assets & Depreciation
The Straight-Line Method
Cost Residual Value
Years of Useful Life

Cost of the Depreciable Asset $17,000
Less: Estimated Residual Value 2,000
Total Amount to be Depreciated $15,000
Estimated Useful Life 5 Years
Depreciation Expense each Year $3,000

Khurram Nasir Plant Assets & Depreciation
The Straight-Line Method
Depreciation Schedule: Straight-Line Method

Depreciation Accumulated Book
Year Computation Expense Depreciation Value
$17,000
First $15,000 x 1/5 $3,000 $3,000 14,000
Second $15,000 x 1/5 $3,000 6,000 11,000
Third $15,000 x 1/5 $3,000 9,000

Khurram Nasir Plant Assets & Depreciation
The Straight-Line Method
Depreciation Schedule: Straight-Line Method
(Depreciation for Fractional Periods)

Depreciation Accumulated Book
Year Computation Expense Depreciation Value
$17,000
First $15,000 x 1/5 x 1/2 $1,500 $1,500 15,500
Second $15,000 x 1/5 $3,000 4,500 12,500
Third $15,000 x 1/5 $3,000

Khurram Nasir Plant Assets & Depreciation
The Declining Balance Method


Depreciation = Remaining x Accelerated
Expense Book Value Depreciation Rate


Khurram Nasir Plant Assets & Depreciation
The Declining Balance Method
Depreciation Schedule: 200% Declining-Balance Method

Depreciation Accumulated Book
Year Computation Expense Depreciation Value
$17,000
First $17,000 x 40% $6,800 $6,800 10,200
Second $10,200 x 40% $4,080 10,880 6,120
Third $
Khurram Nasir Plant Assets & Depreciation
The Declining Balance Method
Depreciation Schedule: 150% Declining-Balance Method

Depreciation Accumulated Book
Year Computation Expense Depreciation Value
$17,000
First $17,000 x 30% $5,100 $5,100 11,900
Second $11,900 x 30% $3,570 8,670 8,330
Third $
Khurram Nasir Plant Assets & Depreciation
MACRS
Khurram Nasir Brands & Brand
Management
MACRS
Depreciation Schedule: MACRS Income Tax Method

Depreciation Accumulated Book
Year Computation Expense Depreciation Value

First $17,000 x 20% $3,400 $3,400 $13,600
Second $17,000 x 32% $5,440 8,840 8,160
Third $
Khurram Nasir Plant Assets & Depreciation
The Unit-of-Output Method

Cost Residual Value = Cost per
Estimated Units of Output Unit of Output


Khurram Nasir Plant Assets & Depreciation
Sum-of-the-Years Digits
Depreciation Schedule: Sum-of-the-Years Digits Method

Depreciation Accumulated Book
Year Computation Expense Depreciation Value
$17,000
First $15,000 x 5/15 $5,000 $5,000 12,000
Second $15,000 x 4/15 $4,000 9,000 8,000
Third $15,000 x 3/15 $3,000 12,000
Khurram Nasir Plant Assets & Depreciation
Decelerated Depreciation Methods



Revision of Estimated Useful Life



Impairment of Plant Assets



Khurram Nasir Plant Assets & Depreciation
Disposal of Plant and Equipment
Scrapping a Fully Depreciated Asset

Disposal at a Price Above Book Value

Disposal at a Price Below Book Value

Trading in Used Asset for New Ones


Khurram Nasir Plant Assets & Depreciation
Intangible Assets



Khurram Nasir Plant Assets & Depreciation
Intangible Assets
Goodwill
Mandarin Golden
Coast Dragon
Fair Market Value of Net Identifiable Assets $1,000,000 $1,000,000
Normal Rate of return on net assets 15% 15%
Normal Earnings 150,000 150,000
Average actual net earnings for past five years 150,000 200,000
Earnings in excess of normal $ 0 $ 50,000


Goodwill $300,000
Cash $300,000

Amortization Expense: Goodwill
Goodwill

Khurram Nasir Plant Assets & Depreciation
Intangible Assets
Patent $100,000
Cash $100,000


Amortization Expense: Patents $25,000
Patents $25,000



Khurram Nasir Plant Assets & Depreciation
Natural Resources



Khurram Nasir Plant Assets & Depreciation
Natural Resources
Mining Property: Red Valley Mine $45,000,000
Cash $45,000,000

Inventory $8,000,000
Accumulated Depletion:RVM $8,000,000


Property, Plant, & Equipment
Mining Property: Red Valley Mine $45,000,000
Less: Accumulated depletion 8,000,000
Khurram Nasir Plant Assets & Depreciation

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