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ASSETS
CHAPTER 9
Objective 1:
Define, classify, and
account for the cost
of fixed assets.
Depreciation:
For the first year, the book value of the equipment is its initial
cost of $24,000.
After the first year, the book value (cost minus accumulated
depreciation) declines and, thus, the depreciation also
declines.
The double-declining-balance depreciation for the full
five-year life of the equipment is shown below.
“Forced”
depreciation for 5th year
DEPRECIATION STOPS WHEN STOP
BOOK VALUE EQUALS RESIDUAL
VALUE!
DOUBLE DECLINING BALANCE METHOD
If the preceding equipment was purchased and placed
into service on October 1, depreciation for the year
ending December 31 would be $2,400, computed as
follows:
First year partial
= $9,600 x 3/12 = $2,400
depreciation
The depreciation for the second year would then be
$8,640, computed as follows:
Second year
= [40% x ($24,000 – $2,400)]
depreciation
Second year
= $8,640
depreciation
The double-declining-balance method
provides a higher depreciation in the first
year of the asset’s use, followed by
declining depreciation amounts. Thus, it is
called an accelerated depreciation
method.
Comparing Depreciation Methods
Discarding Fixed Assets Objective 3:
Journalize entries
for the disposal of
fixed assets.
$600 × 3/12
The discarding of the equipment is then recorded
as shown below. (Note that this is the second of
two entries on March 24.)
SELLING FIXED ASSETS
Equipment was purchased at a cost of $10,000. It had
no estimated residual value and was depreciated at a
straight-line rate of 10%. The equipment is sold for
cash on October 12 of the eighth year of its use. The
balance of the accumulated depreciation account as of
the preceding December 31 is $7,000.
The entry to update the depreciation for the nine
months of the current year is as follows:
After the current depreciation is recorded, the book
value of the asset is $2,250 ($10,000 – $7,750).
Sold at book value for $2,250. No gain or loss.
Fixed Asset
Turnover = Net Sales
Ratio Average Book Value of Fixed
Assets
Assignments all due Friday, 12/05
1. PE 9-9A page 434
2. PE 9-9B page 434
3. Exercise 9-23 page 439
4. Exercise 9-24 page 439
5. CP 9-5 page 446
6. Compute the fixed asset turnover for one of your
companies. Use the most current year.
All work is to be written or typed out clearly showing all work.
Be sure to indicate each assignment by number and hand in
when complete.