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1、2022/12/10,西方财务会计原版课件11,西方财务会计原版课件11,西方财务会计原版课件11,C H A P T E R 11,DEPRECIATION, IMPAIRMENTS, AND DEPLETION,Intermediate Accounting13th EditionKieso, Weygandt, and Warfield,西方财务会计原版课件11,Explain the concept of depreciation.Identify the factors involved in the depreciation process.Compare activity, st
2、raight-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 to report and analyze property, plant, equipment, and natural res
3、ources.,Learning Objectives,西方财务会计原版课件11,Depreciation,Factors involvedMethods of depreciationSpecial methodsSpecial issues,Impairments,Depletion,Presentation and Analysis,Recognizing impairmentsMeasuring ImpairmentsRestoration of lossAssets to be disposed of,PresentationAnalysis,Establishing a baseW
4、rite-off of resource costEstimating reservesLiquidating dividendsContinuing controversy,Depreciation, Impairments, and Depletion,西方财务会计原版课件11,Allocating costs of long-term assets:Fixed assets = Depreciation expenseIntangibles = Amortization expenseNatural resources = Depletion expense,Depreciation i
5、s the accounting 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.,Depreciation - Method of Cost Allocation,LO 1 Explain the concept of depreciation.,西方财务会计原版课件11,Depreciation - Method of C
6、ost Allocation,LO 2 Identify the factors involved in the depreciation process.,Three basic questions:,Factors Involved in the Depreciation Process,What depreciable base is to be used?What is the assets useful life?What method of cost allocation is best?,西方财务会计原版课件11,Depreciation - Method of Cost All
7、ocation,LO 2 Identify the factors involved in the depreciation process.,Depreciable Base,Factors Involved in the Depreciation Process,Illustration 11-1,西方财务会计原版课件11,Depreciation - Method of Cost Allocation,LO 2 Identify the factors involved in the depreciation process.,Estimation of Service Lifes,Fa
8、ctors Involved in the Depreciation Process,Service life of an asset often differs from its physical life.Companies retire assets for two reasons: physical factors (such as casualty or expiration of physical life) and economic factors (obsolescence).,西方财务会计原版课件11,Depreciation - Method of Cost Allocat
9、ion,LO 3 Compare activity, straight-line, and decreasing-charge methods of depreciation.,The profession requires the method employed be “systematic and rational.” Examples include:,Methods of Depreciation,Activity method (units of use or production).Straight-line method. Sum-of-the-years-digits.Decl
10、ining-balance method.Group and composite methods.Hybrid or combination methods.,Accelerated methods,Special methods,西方财务会计原版课件11,Depreciation - Method of Cost Allocation,LO 3 Compare activity, straight-line, and decreasing-charge methods of depreciation.,Activity Method,Illustration 11-2,Illustratio
11、n: If Stanley uses the crane for 4,000 hours the first year, the depreciation charge is:,Stanley Coal Mines Facts,Illustration 11-3,西方财务会计原版课件11,Depreciation - Method of Cost Allocation,LO 3 Compare activity, straight-line, and decreasing-charge methods of depreciation.,Straight-Line Method,Illustra
12、tion 11-2,Illustration: Stanley computes depreciation as follows:,Stanley Coal Mines Facts,Illustration 11-4,西方财务会计原版课件11,Depreciation - Method of Cost Allocation,LO 3 Compare activity, straight-line, and decreasing-charge methods of depreciation.,Decreasing-Charge Methods,Illustration 11-2,Stanley
13、Coal Mines Facts,Sum-of-the-Years-Digits. Each fraction uses the sum of the years as a denominator (5 + 4 + 3 + 2 + 1 = 15). The numerator is the number of years of estimated life remaining as of the beginning of the year.,西方财务会计原版课件11,Depreciation - Method of Cost Allocation,LO 3 Compare activity,
14、straight-line, and decreasing-charge methods of depreciation.,Sum-of-the-Years-Digits,Illustration 11-6,西方财务会计原版课件11,Depreciation - Method of Cost Allocation,LO 3 Compare activity, straight-line, and decreasing-charge methods of depreciation.,Decreasing-Charge Methods,Illustration 11-2,Stanley Coal
15、Mines Facts,Declining-Balance Method. Utilizes a depreciation rate (percentage) that is some multiple of the straight-line method.Does not deduct the salvage value in computing the depreciation base.,西方财务会计原版课件11,Depreciation - Method of Cost Allocation,LO 3 Compare activity, straight-line, and decr
16、easing-charge methods of depreciation.,Declining-Balance Method,Illustration 11-7,西方财务会计原版课件11,Depreciation - Method of Cost Allocation,LO 3 Compare activity, straight-line, and decreasing-charge methods of depreciation.,E11-5 (Depreciation ComputationsFour Methods): KC Corporation purchased a new m
17、achine for its assembly process on August 1, 2010. The cost of this machine was $150,000. The company estimated that the machine would have a salvage value of $24,000 at the end of its service life. Its life is estimatedat 5 years and its working hours are estimated at 21,000 hours. Year-end is Dece
18、mber 31.,Instructions: Compute the depreciation expense under the following methods. (a) Straight-line depreciation. (c) Sum-of-the-years-digits.(b) Activity method(d) Double-declining balance.,西方财务会计原版课件11,Depreciation - Method of Cost Allocation,LO 3 Compare activity, straight-line, and decreasing
19、-charge methods of depreciation.,Straight-line Method,西方财务会计原版课件11,Depreciation - Method of Cost Allocation,LO 3,Activity Method,(Assume 800 hours used in 2010),西方财务会计原版课件11,Depreciation - Method of Cost Allocation,Sum-of-the-Years-Digits Method,LO 3,5/12 = .4166677/12 = .583333,西方财务会计原版课件11,Depreci
20、ation - Method of Cost Allocation,Double-Declining Balance Method,LO 3,西方财务会计原版课件11,Depreciation - Method of Cost Allocation,LO 4 Explain special depreciation methods.,The choice of method depends on the nature of the assets involved:,Special Depreciation Methods,Group method used when the assets ar
21、e similar in nature and have approximately the same useful lives.Composite approach used when the assets are dissimilar and have different lives.Companies are also free to develop tailor-made depreciation methods, provided the method results in the allocation of an assets cost in a systematic and ra
22、tional manner (Hybrid or Combination Methods).,西方财务会计原版课件11,Depreciation - Method of Cost Allocation,LO 4 Explain special depreciation methods.,Special Depreciation Issues,How should companies compute depreciation for partial periods?Companies normally compute depreciation on the basis of the neares
23、t full month.Does depreciation provide for the replacement of assets?Funds for the replacement of the assets come from the revenuesHow should companies handle revisions in depreciation rates?,西方财务会计原版课件11,Changes in Depreciation RateAccounted for in the period of change and future periods (Change in
24、 Estimate)Not handled retrospectivelyNot considered errors or extraordinary items,LO 4 Explain special depreciation methods.,Depreciation - Method of Cost Allocation,西方财务会计原版课件11,Arcadia HS, purchased equipment for $510,000 which was estimated to have a useful life of 10 years with a salvage value o
25、f $10,000 at the end of that time. Depreciation has been recorded for 7 years on a straight-line basis. In 2010 (year 8), it is determined that the total estimated life should be 15 years with a salvage value of $5,000 at the end of that time.Questions:What is the journal entry to correct the prior
26、years depreciation?Calculate the depreciation expense for 2010.,No Entry Required,Change in Estimate Example,LO 4 Explain special depreciation methods.,西方财务会计原版课件11,Equipment,$510,000,Fixed Assets:,Accumulated depreciation,350,000,Net book value (NBV),$160,000,Balance Sheet (Dec. 31, 2009),Change in
27、 Estimate Example,After 7 years,Equipment cost $510,000Salvage value - 10,000Depreciable base500,000Useful life (original) 10 yearsAnnual depreciation $ 50,000,x 7 years = $350,000,First, establish NBV at date of change in estimate.,LO 4 Explain special depreciation methods.,西方财务会计原版课件11,Change in E
28、stimate Example,After 7 years,Net book value $160,000Salvage value (new) 5,000Depreciable base155,000Useful life remaining 8 yearsAnnual depreciation $ 19,375,Depreciation Expense calculation for 2010.,Depreciation expense 19,375Accumulated depreciation 19,375,Journal entry for 2010,LO 4 Explain spe
29、cial depreciation methods.,西方财务会计原版课件11,Impairments,LO 5 Explain the accounting issues related to asset impairment.,When the carrying amount of an asset is not recoverable, a company records a write-off referred to as an impairment.,Events leading to an impairment:Decrease in the market value of an
30、asset. Change in the manner in which an asset is used.Adverse change in legal factors or in the business climate.An accumulation of costs in excess of the amount originally expected to acquire or construct an asset.A projection or forecast that demonstrates continuing losses associated with an asset
31、.,西方财务会计原版课件11,Impairments,LO 5 Explain the accounting issues related to asset impairment.,Measuring Impairments,Review events for possible impairment.If the review indicates impairment, apply the recoverability test. If the sum of the expected future net cash flows from the long-lived asset is less
32、 than the carrying amount of the asset, an impairment has occurred.3. Assuming an impairment, the impairment loss is the amount by which the carrying amount of the asset exceeds the fair value of the asset. The fair value is the market value or the present value of expected future net cash flows.,西方
33、财务会计原版课件11,Impairments,LO 5 Explain the accounting issues related to asset impairment.,Illustration 11-16Accounting for Impairments,西方财务会计原版课件11,E11-16 (Impairment): Presented below is information related to equipment owned by Pujols Company at December 31, 2010. Assume that Pujols will continue to
34、use this asset in the future. As of December 31, 2010, the equipment has a remaining useful life of 4 years.,Instructions:(a) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2010.(b) Prepare the journal entry to record depreciation expense for 2011.(c) The fa
35、ir value of the equipment at December 31, 2011, is $5,100,000. Prepare the journal entry (if any) necessary to record this increase in fair value.,Impairments,LO 5 Explain the accounting issues related to asset impairment.,西方财务会计原版课件11,Loss on impairment 3,600,000Accumulated depreciation 3,600,000,I
36、mpairments,(a).,12/31/10,LO 5 Explain the accounting issues related to asset impairment.,西方财务会计原版课件11,Depreciation expense 1,100,000Accumulated depreciation 1,100,000,Impairments,(b).,(c). Restoration of any impairment loss is not permitted.,12/31/11,LO 5 Explain the accounting issues related to ass
37、et impairment.,西方财务会计原版课件11,Natural resources, often called wasting assets, include petroleum, minerals, and timber.They have two main features:,Depletion,LO 6 Explain the accounting procedures for depletion of natural resources.,complete removal (consumption) of the asset, andreplacement of the ass
38、et only by an act of nature.,Depletion is the process of allocating the cost of natural resources.,西方财务会计原版课件11,Establishing a Depletion Base,Depletion,LO 6 Explain the accounting procedures for depletion of natural resources.,Computation of the depletion base involves four factors: Acquisition cost
39、 of the deposit, Exploration costs, Development costs, and Restoration costs.,西方财务会计原版课件11,Write-off of Resource Cost,Depletion,LO 6 Explain the accounting procedures for depletion of natural resources.,Normally, companies compute depletion on a units-of-production method (an activity approach). Thu
40、s, depletion is a function of the number of units extracted during the period.Calculation:,Total cost Salvage value,Total estimated units available,= Depletion cost per unit,Units extracted x Cost per unit,= Depletion,西方财务会计原版课件11,E11-19 (Depletion ComputationsTimber): Hernandez Timber Company owns
41、9,000 acres of timberland purchased in 1999 at a cost of $1,400 per acre. At the time of purchase the land without the timber was valued at $400 per acre. In 2000, Hernandez built fire lanes and roads, with a life of 30 years, at a cost of $87,000. Every year Hernandez sprays to prevent disease at a
42、 cost of $3,000 per year and spends $7,000 to maintain the fire lanes and roads. During 2001, Hernandez selectively logged and sold 700,000 board feet of timber, of the estimated 3,000,000 board feet. In 2002, Hernandez planted new seedlings to replace the trees cut at a cost of $100,000.,Depletion,
43、LO 6 Explain the accounting procedures for depletion of natural resources.,Instructions:Determine the depreciation expense and the cost of timber sold related to depletion for 2001.,西方财务会计原版课件11,E11-19 (Depletion ComputationsTimber),Depletion,LO 6 Explain the accounting procedures for depletion of n
44、atural resources.,西方财务会计原版课件11,E11-19 (Depletion ComputationsTimber),Depletion,LO 6 Explain the accounting procedures for depletion of natural resources.,西方财务会计原版课件11,Estimating Recoverable Reserves,Depletion,LO 6 Explain the accounting procedures for depletion of natural resources.,Same as accounti
45、ng for changes in estimates.Revise the depletion rate on a prospective basis.Divides the remaining cost by the new estimate of the recoverable reserves.,西方财务会计原版课件11,Liquidating Dividends - Dividends greater than the amount of accumulated net income.,Depletion,LO 6 Explain the accounting procedures
46、for depletion of natural resources.,Illustration: Callahan Mining had a retained earnings balance of $1,650,000 and paid-in capital in excess of par of $5,435,493. Callahans board declared a dividend of $3 a share on the 1,000,000 shares outstanding. It records the $3,000,000 cash dividend as follow
47、s.,Retained Earnings 1,650,000Paid-in Capital in Excess of Par 1,350,000Cash 3,000,000,西方财务会计原版课件11,Continuing ControversyOil and Gas Industry:Full cost conceptSuccessful efforts concept,Depletion,LO 6 Explain the accounting procedures for depletion of natural resources.,西方财务会计原版课件11,Presentation of
48、 Property, Plant, Equipment, and Natural Resources,Presentation and Analysis,Basis of valuation (cost)Pledges, liens, and other commitmentsDepreciation expense for the period.Balances of major classes of depreciable assets.Accumulated depreciation.A description of the depreciation methods used.,Depr
49、eciating assets, use Accumulated Depreciation.Depleting assets may include use of Accumulated Depletion account, or the direct reduction of asset.,Disclosures,LO 7 Explain how to report and analyze property, plant, equipment, and natural resources.,西方财务会计原版课件11,The assets turnover is a measure of a
50、firms ability to generate sales from a particular investment in assets.,Presentation and Analysis,LO 7 Explain how to report and analyze property, plant, equipment, and natural resources.,Solution on notes page,Illustration 11-20,西方财务会计原版课件11,Presentation and Analysis,LO 7 Explain how to report and
