Long-term Assets.ppt

Long-term Assets Types of Long-Term Assets Property, plant, and equipment Long-term assets acquired for use in operations Natural resources Long-term assets with a value that decreases through use or sale Types of Long-Term Assets Intangible assets Long-term assets that do not have physical substance Plant Asset Cost Purchase price (less cash discount) Plant Asset Cost Purchase price (less cash discount) plus all other reasonable and necessary expenditures Plant Asset Cost Purchase price (less cash discount) plus all other reasonable and necessary expenditures to prepare the asset for use Examples of Items Included Purchase price less any cash discount Shipping costs Installation costs Cost of modifications Interest cost during construction Depreciation Allocation of the cost of an asset to the periods the asset benefits Not a valuation process Factors in Estimating Depreciation Initial cost Estimated residual value Estimated Useful Life Depreciation Methods Straight-line allocate an equal amount to each period Production unit depreciation based on volume of output Accelerated Depreciation Methods Double Declining-balance apply a uniform rate to a declining amount (book value) Sum-of-the-Years’-Digits annual amount the decreases by a constant amount Example Data Depreciable Asset - Truck Invoice price $20,000 Cash discount 2% Modifications $3,400 Estimated residual value $2,000 Useful life - 4 years or 200,000 miles Acquisition date - January 8, 19X1 Cost of Truck Invoice price $20,000 Less: Cash discount 400 subtotal $19,600 Modification 3,400 Cost $23,000 Straight-Line Method Straight-Line Method Expense Accum 19X1: ($23,000 - $2,000) / 4 $5,250 $5,250 19X2: ($23,000 - $2,000) / 4 $5,250 $10,500 19X3: ($23,000 - $2,000) / 4 $5,250 $15,750 19X4: ($23,000 - $2,000) / 4 $5,250 $21,000 Production Units Method Production Units Method Exp Accum ($23,000 - $2,000) / 200,000 = $0.105 per mile 19X1: 50,000 miles X $0.105 $5,250 $5,250