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Chapter
11
Chapter 11-1
Construction costs:
Contract price plus payments for architects fees, building permits, and excavation costs.
Chapter 11-4
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.
Illustration 10-8 Use of depreciation methods in 600 large U.S. companies
Chapter 11-5
Chapter 11-6
Chapter 11-7
Chapter 11-8
Chapter 11-9
Partial Year $
21,000 21,000
Chapter 11-11
Chapter 11-12
No Entry Required
After 7 years
$510,000 First, establish - 10,000 NBV at date of change in estimate. 500,000 10 years $ 50,000 x 7 years = $350,000
Balance Sheet (Dec. 31, 2004) Fixed Assets: Equipment Accumulated depreciation Net book value (NBV)
Chapter 11-14
After 7 years
Depreciation Expense calculation for 2005.
Depreciation expense
Accumulated depreciation
Chapter 11-15
19,375
19,375
Depletion
Natural resources, often called wasting assets, include petroleum, minerals, and timber. They have two main features:
1. complete removal (consumption) of the asset, and 2. replacement of the asset only by an act of nature. Depletion is the process of allocating the cost of natural resources.
Chapter 11-16
Depletion
Establishing a Depletion Base
Computation of the depletion base involves four factors: (1) Acquisition cost of the deposit, (2) Exploration costs, (3) Development costs, and (4) Restoration costs.
Chapter 11-17
Depletion
Write-off of Resource Cost
Normally, companies compute depletion on a units-ofproduction method (an activity approach). Thus, depletion is a function of the number of units extracted during the period. Calculation:
Total cost Salvage value
(a)
41,000 41,000
Chapter 11-19
(b)
Chapter 11-20
Chapter 11-21
BE10-10 Chan Company sells office equipment on September 30, 2008, for $20,000 cash. The office equipment originally cost $72,000 and as of January 1, 2008, had accumulated depreciation of $42,000. Prepare the journal entries to (a) record the sale of the equipment.
Chapter 11-22
Accumulated depreciation
Office equipment Loss on disposal
42,000
72,000 10,000
Chapter 11-23
Franchises or licenses
Chapter 11-24