Académique Documents
Professionnel Documents
Culture Documents
9-1
Chapter
Plant Assets,
Natural Resources, and
Intangible Assets
Financial Accounting, IFRS Edition
Weygandt Kimmel Kieso
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9-2
Study Objectives
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9-3
1.
2.
3.
4.
5.
6.
7.
8.
9.
Plant Assets
Determining the
cost of plant
assets
Accounting for
extractable
natural resources
Depreciation
Financial
statement
presentation
Revaluation of
plant assets
Expenditures
during useful life
Plant asset
disposals
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9-4
Natural
Resources
Intangible
Assets
Accounting for
intangibles
Types of
intangibles
Research and
development
costs
Statement
Presentation and
Analysis
Presentation
Analysis
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9-5
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9-6
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9-8
Land
Cash price of property of $100,000
$100,000
6,000
1,000
8,000
Cost of Land
$115,000
Journal Entry
Land
Cash
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9-9
115,000
115,000
SO 1 Describe how the cost principle applies to plant assets.
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9-10
Construction costs:
Contract price plus payments for architects fees, building
permits, and excavation costs.
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9-11
Cash price
3,000
Sales taxes
Insurance during shipping
Installation and testing
Cost of Machinery
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9-13
500
1,000
$54,500
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9-14
Depreciation
Depreciation is the process of allocating the cost of
tangible assets to expense in a systematic and rational
manner to those periods expected to benefit from the use
of the asset.
Process of cost allocation, not asset valuation.
Applies to land improvements, buildings, and
equipment, not land.
Depreciable, because the revenue-producing ability of
asset will decline over the assets useful life.
Slide
9-15
Depreciation
Factors in Computing Depreciation
Illustration 9-6
Cost
Slide
9-16
Useful Life
Residual Value
Depreciation
Depreciation Methods
Objective is to select the method that best measures an
assets contribution to revenue over its useful life.
Examples include:
(1) Straight-line method.
(2) Units-of-Activity method.
(3) Declining-balance method.
Slide
9-17
Depreciation
Illustration: Barbs Florists purchased a small delivery truck on
January 1, 2011.
Illustration 9-7
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9-18
(b) Units-of-Activity
Depreciation
Straight-Line
Expense is same amount for each year.
Depreciable cost - cost of the asset less its residual
value.
Illustration 9-8
Slide
9-19
Depreciation
Illustration: (Straight-Line Method)
Illustration 9-9
Year
Depreciable
Cost
2011
$ 12,000
2012
12,000
20
2,400
4,800
8,200
2013
12,000
20
2,400
7,200
5,800
2014
12,000
20
2,400
9,600
3,400
2015
12,000
20
2,400
12,000
1,000
2011
Journal
Entry
Slide
9-20
Rate
20%
Annual
Expense
Accum.
Deprec.
Book
Value
$ 2,400
$ 2,400
$ 10,600
Depreciation expense
Accumulated depreciation
2,400
2,400
Depreciation
Units-of-Activity
Companies estimate total units of activity to calculate
depreciation cost per unit.
Expense varies based on units of activity.
Depreciable cost is
cost less residual
value.
Slide
9-21
Illustration 9-10
Depreciation
Illustration: (Units-of-Activity Method)
Units
Annual
of
Year
Activity
2011
15,000
2012
Unit
Depreciation Accumulated
=
Book
Expense
Depreciation
Value
$ 0.12
$ 1,800
$ 1,800
$ 11,200
30,000
0.12
3,600
5,400
7,600
2013
20,000
0.12
2,400
7,800
5,200
2014
25,000
0.12
3,000
10,800
2,200
2015
10,000
0.12
1,200
12,000
1,000
2011
Journal
Entry
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9-22
Cost /
Illustration 9-11
Depreciation expense
Accumulated depreciation
1,800
1,800
Depreciation
Declining-Balance
Decreasing annual depreciation expense over the assets
useful life.
Declining-balance rate is double the straight-line rate.
Rate applied to book value.
Illustration 9-12
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9-23
Depreciation
Illustration: (Declining-Balance Method)
Declining
Balance
x Rate =
Annual
Deprec.
Expense
Accum.
Deprec.
Book
Value
$ 5,200
$ 5,200
$ 7,800
Illustration 9-13
Year
Beginning
Book value
2011
13,000
40%
2012
7,800
40
3,120
8,320
4,680
2013
4,680
40
1,872
10,192
2,808
2014
2,808
40
1,123
11,315
1,685
2015
1,685
40
12,000
1,000
2011
Journal
Entry
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9-24
685*
Depreciation expense
5,200
Accumulated depreciation
5,200
Depreciation
Comparison of Methods
Illustration 9-14
Illustration 9-15
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9-25
Depreciation
Review Question
Depreciation is a process of:
a. valuation.
b. cost allocation.
c. cash accumulation.
d. appraisal.
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9-26
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9-27
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9-28
(b) Units-of-Activity
Year
2011
2012
2013
2014
2015
2016
Depreciable
Cost
$
12,000
12,000
12,000
12,000
12,000
12,000
x
x
x
x
x
x
Rate
20%
20%
20%
20%
20%
20%
=
=
=
=
=
=
Annual
Expense
$
2,400
2,400
2,400
2,400
2,400
2,400
Partial
Year
3/12
9/12
Current
Year
Expense
= $
600
2,400
2,400
2,400
2,400
=
1,800
$
12,000
Accum.
Deprec.
$
600
3,000
5,400
7,800
10,200
12,000
Journal entry:
2011
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9-29
Depreciation expense
Accumultated depreciation
600
600
Unit
Annual
Accum.
Book
Expense
Deprec.
Value
Year
Used
2011
15,000
$ 0.12
$ 1,800
$ 1,800
$ 11,200
2012
30,000
0.12
3,600
5,400
7,600
2013
20,000
0.12
2,400
7,800
5,200
2014
25,000
0.12
3,000
10,800
2,200
2015
10,000
0.12
1,200
12,000
1,000
2011
Journal
Entry
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9-30
Cost /
Illustration 9-12
Depreciation expense
Accumulated depreciation
1,800
1,800
Year
2011
2012
2013
2014
2015
2016
Beginning
Book Value
$
13,000
11,700
7,020
4,212
2,527
1,516
x
x
x
x
x
x
Declining
Balance
Rate
40%
40%
40%
40%
40%
40%
=
=
=
=
=
=
Annual
Expense
$
5,200 x
4,680
2,808
1,685
1,011
607
Partial
Year
3/12
Plug
Current
Year
Expense
= $
1,300
4,680
2,808
1,685
1,011
516
$
12,000
Accum.
Deprec.
$
1,300
5,980
8,788
10,473
11,484
12,000
Journal entry:
2011
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9-31
Depreciation expense
Accumultated depreciation
1,300
1,300
Depreciation
Depreciation and Income Taxes
Tax laws often do not require the taxpayer to use the
same depreciation method on the tax return that is used
in preparing financial statements.
Many corporations use straight-line in their financial
statements to maximize net income. At the same time,
they use an accelerated-depreciation method on their
tax returns to minimize their income taxes.
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9-32
Depreciation
Revising Periodic Depreciation
Accounted for in the period of change and future
periods (Change in Estimate).
Not handled retrospectively.
Not considered error.
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9-33
Depreciation
Illustration: Assume that Barbs Florists decides on January 1,
2014, to extend the useful life of the truck one year because of
its excellent condition. The company has used the straight-line
method to depreciate the asset to date, and book value is
$5,800 ($13,000 - $7,200).
Questions:
1. What is the journal entry to correct
the prior years depreciation?
No Entry
Required
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9-34
Depreciation
Book value, 1/1/14
Residual value
Depreciable cost
Useful life (revised)
Annual depreciation
First,
establish
Book Value at
the date of
change in
estimate.
$5,800
- 1,000
/
4,800
3 years
$ 1,600
Illustration 9-17
Slide
9-35
1,600
1,600
Depreciation
Review Question
When there is a change in estimated depreciation:
a. previous depreciation should be corrected.
b. current and future years depreciation should be
revised.
c. only future years depreciation should be revised.
d. None of the above.
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9-36
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9-37
200,000
200,000
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9-38
200,000
150,000
50,000
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9-39
32,000
32,000
14,000
4,000
18,000
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9-44
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9-45
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9-46
8,000
8,000
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9-47
Cash
16,000
Accumulated depreciation
49,000
Office equipment
60,000
Gain on disposal
5,000
Illustration 9-21
Computation of loss on disposal
Illustration: Assume
that instead of selling
the office furniture for
$16,000, Wright sells it
for $9,000.
July 1
Cash
9,000
Accumulated depreciation
49,000
Office equipment
Loss on disposal
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9-48
60,000
5,000
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9-49
400,000
400,000
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9-52
Franchises or licenses
Goodwill
IFRS permits revaluation of intangible assets to fair value, except for goodwill.
Slide
9-53
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9-54
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9-55
7,500
7,500
are franchises.
Franchise (or license) with a limited life should be
amortized to expense over the life of the franchise.
Franchise with an indefinite life should be carried at cost
and not amortized.
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9-58
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9-59
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9-60
formula,
process,
idea,
composition, or
literary work.
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9-62
Illustration 9-24
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9-63
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Appendix
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9-68
Loss
Treatment
Slide
9-69
$64,000
22,000
42,000
26,000
$16,000
$26,000
17,000
$43,000
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9-70
Semi-truck
43,000
Accumulated depreciation
22,000
Loss on disposal
16,000
Used trucks
64,000
Cash
17,000
SO 10 Explain how to account for the exchange of plant assets.
Gain
Treatment
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9-71
$40,000
28,000
12,000
19,000
$ 7,000
$19,000
3,000
$22,000
22,000
Accumulated depreciation
28,000
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9-72
40,000
Gain on disposal
7,000
Cash
3,000
SO 10 Explain how to account for the exchange of plant assets.
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Copyright
Copyright 2011 John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that permitted in
Section 117 of the 1976 United States Copyright Act without the
express written permission of the copyright owner is unlawful.
Request for further information should be addressed to the
Permissions Department, John Wiley & Sons, Inc. The purchaser
may make back-up copies for his/her own use only and not for
distribution or resale. The Publisher assumes no responsibility for
errors, omissions, or damages, caused by the use of these
programs or from the use of the information contained herein.
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