1. Plant assets and depreciation
Chapter 23

2. Plant Assets and Equipment
Plant Assets – Long lived assets that are used in production or sale of other assets over several accounting periods
Land, buildings, equipment
Aka long term assets, fixed assets
Depreciation – Allocating the cost of a plant asset over its useful life

3. Estimating Depreciation
Four Factors
Cost
Useful Life
Disposal Value (salvage, residual)
Depreciation Method

4. Depreciation Methods
Straight Line depreciation – equally distributes cost over time
Units of Production method – distributes cost over equally by production opposed to time
Accelerated Depreciation
Sum of the years digits
Double Declining

5. Straight Line Formula
(Cost – Salvage Value) = Annual Depreciation Useful Life Another Way to say it… Depreciable Amount = Annual Depreciation

6. Units of Production Formula
Depreciable Amount * Units Used Useful Life in Units

7. Sum of the Years’ Digits
Depreciable Amount * Reverse Order Year
Sum of Years’ Digits

8. Double Declining Book Value * 2 Useful Life
Book Value cannot be reduced below Salvage Value
If at any point Straight Line method would result in a greater Annual Depreciation, then switch

9. Why Depreciate Assets???
Advantages:

10. Calculating Depreciation
Accumulated Depreciation – total amount of depreciation for a plant asset that has been recorded up to a specific point in time
Book Value – The original cost of a plant asset minus accumulated depreciation.

11. End of Period Adjusting for Depreciation Expense
Depreciation Expense - Asset xxx
Accumulated Depreciation – Asset xxx
Closing Depreciation Expense
Income Summary xxx
Depreciation Expense – Asset xxx

12. End of period
Like all expense accounts, Depreciation Expense will be closed to income summary… and eventually impact net income and retained earnings
Accumulated Depreciation is a Contra Asset account.
Found on Balance Sheet
Listed under the asset
The book value of the asset is considering when proving
A = L + OE

13. Other Depreciation Methods
Double – Declining
2x annual depreciation
Based on book value
Sum of year’s digits
Depreciable Amount x (Reverse order of year / Sum of year’s digits)
Units of production
Depreciable Amount x (Units used/Expected Life in units)