PLANT ASSETS Study Objective Describe the practice of cost of account to plant assets. The explanation about the depreciation opinion. The computing the depreciation period with different methods. Describe the rule of changing depreciation period. The difference between income and expense and explain about the transaction for the expense. How to compute for asset in stop using of selling. Compute the deduction of period natural resource. The contrast between the intangible assets and plant assets. How are plant assets, natural resource and intangible assets reported and analyzed.

Fixed Assets Fixed Assets are fixed resource that they are used to operate the business and are not sold to the customer. Fixed Assets are divided in to four kinds : - Land - Land improvement - Building - Equipment Fixed assets are important for the business because : - Store assets in the condition of a good operation. - Replace the assets that over the deadline. - Improve the productivity of resource that we need.

Example of Fixed assets On January 1 , 2009 Panha Co., Ltd purchased equipment for $13,000 in cash. The equipment has an estimated residual value of $1000.

I. Formula for straight-line: Straight-line depreciation is the method that allocates the cost of an asset in equal periodic amounts over its useful life. Cost - Salvage Value = Depreciation cost $13,00- $1,000 = $12,000 Depreciation cost Annual Depreciation Expense Useful life (in year)

Straight line depreciation schedule: IBM Co., Ltd Computation Ending of year Depreciation Annual Account Bank Year Cost Rate Depreciat Depreciatio Value 2008 12,000 20% 2,400 10,600 2009 4,800 8,200 2010 7,200 5,800 2011 9,600 3,400 2012 12,200 1,000

II. Units of Activity Formula for units of activity method: Units of activity depreciation is a method to allocated the cost of an asset over its useful life based on the relation of its periodic output its total estimated out put. Depreciation cost Depreciation cost per units Total units of activity Depreciation cost per units × Units of activity during the year = Annual depreciation expense

Units of activity depreciation schedule: IBM Co., Ltd Computation Ending of year Year Units of activity Depreciation Per units Annual Dep. expense Annual depreciat. Book Value 2008 15,000 0.12 1,800 11,200 2009 30,000 3,600 5,400 7,600 2010 20,000 2,400 7,800 5,200 2011 10,200 2,800 2012 1,200 1,000

III. Declining balance depreciation Declining balance depreciation is the method that allocates the of an asset over its useful life based on a multiple of the straight line rate of the two times. Formula for declining balance method: Book Value at beginning of year × Declining Balance rate = Annual depreciation Expense

Declining balance depreciation schedule: IBM Co., Ltd Computation Ending of year Year Book va. Beg.year Depreciation Balance rate Annual Dep. expense Annual dep expense Book Value 2008 13,000 40% 5,200 7,800 2009 3,120 8,320 4,680 2010 1,872 10,192 2,808 2011 1,123 11,315 1,685 2012 685 12,000 1,000

IV- Comparing depreciation methods: 12,000 10,000 8,000 Annual straight-line depreciation 6,000 6,000 4,000 2,000 2,000 1 2 3 4 5 Life in year

IV- Comparing depreciation methods: 35,000 30,000 25,000 Annual production depreciation 20,000 15,000 10,000 1 2 3 4 5 Life in year

IV- Comparing depreciation methods: 14,000 12,000 10,000 8,000 Annual declining balance depreciation 6,000 4,000 2,000 1 2 3 4 5 Life in year

V- Change in Estimates for Depreciation On January 1, 2009, equipment was purchased that cost $ 60,000 Has a useful life of 10 year and no salvage value. During 2012, the useful life was revised to 8 year total (5 year remaining). Asset Cost $60,000 Accumulated depreciation 12,31,2010 ($60,000 × 3 year) $18,000 Remaining book value $42,000 Divide by remain life 5 Revised annual depreciation 8,400 Dec 31 Depreciation expense $ 8,400 Accumulated depreciation equipment $8,400

Cost determination and Depletion: Natural Resources: Cost determination and Depletion: Total cost – Salvage Value = Depletion cost per unit Total estimated Units Depletion cost per unit × Number of Units Extracted and sold = Annual Depletion Expense

Depletion Expense = $125 per ton × 13,000 = $325,000 Robert Co., Ltd acquired a tract of land containing ore deposits. Total costs of acquisition and development were $100,000 and Robert estimates the land contained 40,000 tons of ore. During the first year of operations Robert extract and sold 13,000 tons of ore. $1,000,000 – $0 = $125 per ton 40,000 tons Depletion Expense = $125 per ton × 13,000 = $325,000