Chapter 11 Depreciation, Impairments and Depletion(中级会计)概要1.pptVIP

Chapter 11: Depreciation, Impairments and Depletion Explain the concept of depreciation. Identify the factors involved in the depreciation process. Compare activity, straight-line, and decreasing-charge methods of depreciation. Explain special depreciation methods. Explain the accounting issues related to asset impairment. Explain the accounting procedures for depletion of natural resources. Explain how property, plant, equipment, and natural resources are reported and analyzed. Depreciation is a means of cost allocation. It is not a method of valuation. Depreciation involves: allocating the cost of tangible assets to expense in a systematic and rational manner to periods expected to benefit from use of its depreciable assets. Questions to be answered: What is the depreciable base of the asset? What is the asset’s useful life? What method of depreciation is best for the asset in question? Depreciable base is the dollar amount subject to depreciation. It is determined as: Original cost of the asset less Estimated salvage or disposal value An asset’s service life and physical life are not the same. Assets’ service life are affected by: physical factors, and economic factors Economic factors include: Inadequacy (asset can not meet current demand) Supercession (by a better asset) Obsolescence (other factors) Is a function of time rather than usage Results in an equal amount of depreciation expense for a given period Depreciation Expense is computed as: Cost – Salvage Value Estimated Life Is a function of usage rather than time. Estimated life is in terms of total input/output of asset. Depreciation expense is computed as: Cost – Salvage Value x Input/Output this period Total Estimated Input/Output These methods result in higher depreciation expense in the earlier years and lower charges in the later years. Two decreasing charge methods are: Declining balance Sum-of-the-years’-digits Salvage value is not deducted when comp