1. CHAPTER 6
Accounting for and Presentation of Property, Plant, and Equipment, and Other Noncurrent Assets
Chapter 6: Accounting for and Presentation of Property, Plant, and Equipment, and Other Noncurrent Assets
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

2. Noncurrent Assets Land Buildings Equipment Intangible Assets
1) Classified as Assets because they are owned by the organization
2) Have the ability to generate Revenue beyond 1 year
Equipment
Noncurrent assets include land, buildings, equipment, intangible assets and natural resources.
Intangible Assets
Natural Resources

3. Primary Issues for Noncurrent Assets
Decline in asset value over its useful life
Acquisition
Accounting for acquisition of the asset.
Disposal
Accounting for the disposition of the asset.
Use
Accounting for depreciation of the asset.
Accounting for maintenance and repair costs.
Recording the acquisition, use (depreciation, maintenance and repair costs), and disposal of noncurrent assets are primary issues in accounting.

4. Land All costs incurred to get land ready for use are capitalized.
L O 1
All costs incurred to get land ready for use are capitalized.
Land is a non-depreciable asset.
Title insurance premiums
Purchase price
Delinquent
taxes
The acquisition cost of land includes all the costs incurred to get the land ready for use. Capitalized costs include the purchase price, real estate commissions, title and legal fees, costs of razing a building on the land, and delinquent taxes. Note that land is not depreciated.
Real estate
commissions
Razing costs of building on the land
Title and legal fees

5. The following journal entry would be made to capitalize the $250,000:
Land
L O 1
Assume that a company pays $250,000 to purchase land and get it ready for use in its business on January 01.
The following journal entry would be made to capitalize the $250,000:
Assume that a company pays $250,000 to purchase land and get it ready for use in its business on January 1st. The following journal entry would be made to capitalize the costs: debit the land account for $250,000 and credit the cash account for $250,000.

6. Land
L O 1
If 5 years later, on January 01 that same piece of land is sold for $300,000, the entry to record the sale would be:
If five years later, on January 1st that same piece of land is sold for $300,000, the entry to record the sale would be: debit the cash account for $350,000, credit the land account for $250,000 (cost), and credit gain on sale of land for $50,000.

7. Basket Purchase
L O 1
The total cost of a combined purchase of land and a building is allocated to each asset on the basis of relative market values and each asset is recorded separately.
On January 1, UpCo purchased land and building for $200,000 cash. The appraised values are building, $162,500, and land, $87,500.
How much of the $200,000 purchase price will be charged to the building and land accounts?
The total cost of a basket purchase, a combined purchase of land and a building, is allocated to each asset on the basis of relative market values and each asset is recorded separately.
On January 1st, UpCo purchased land and a building for $250,000 cash. The appraised values are building, $162,500, and land, $87,500. How much of the $200,000 purchase price will be charged to the building and land accounts?

8. Basket Purchase
L O 1
The cost is apportioned to the land and building based on the percentage of each asset's appraised value to the total appraised value. For example, the land is appraised at $87,500 and the building is appraised at $162,500 for a total of $250,000 appraised value. The percentage of value assigned to the land is 35 percent ($87,500 divided by $250,000) and the percentage assigned to the building is 65 percent ($162,500 divided by $250,000). The purchase cost is multiplied by the percentage for each asset to arrive at $70,000 ($200,000 times point 35 percent) value for the land and $130,000 ($200,000 times point 65 percent) value for the building.

9. Buildings and Equipment
L O 1
All costs incurred to get an asset ready for use are capitalized.
Purchase price
Installation costs
Architectural fees
Transportation
costs
Capitalized costs for buildings and equipment include purchase price, architectural fees, cost of permits, installation costs, transportation costs, and excavation and construction costs.
Cost of permits
Excavation and construction costs

10. Does not reflect decline in value
Depreciation
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Depreciation is the allocation of the cost of an asset to the years in which the benefits of the asset are expected to be received. It is an application of the matching concept.
Acquisition Cost
(Unused)
Balance Sheet
(Used)
Income Statement
Expense
Cost
Allocation
The original cost of noncurrent assets represents the prepaid cost of economic benefits that will be received in future years. Depreciation is the allocation of the cost of an asset to the years in which the benefits of the asset are expected to be received. It is an application of the matching concept.
The acquisition cost of the asset (unused) is presented on the balance sheet and the expense cost (used) is reported on the income statement. Depreciation is not an attempt to recognize a loss in market value or any difference between original cost and replacement cost of an asset. In fact, the market value of noncurrent assets may actually increase as they are used—but “appreciation” is not presently recorded.
Does not reflect decline in value

11. Depreciation expense is recorded in each fiscal period.
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Depreciation expense is recorded in each fiscal period.
Contra-asset accounts are used to segregate depreciation from original cost
Depreciation expense is recorded in each fiscal period. Depreciation expense is debited and the contra-asset account, accumulated depreciation, is credited. Contra-asset accounts are used to segregate total depreciation recorded from the original cost of the asset.
Contra-asset 4

12. Balance Sheet Presentation
Depreciation
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Balance Sheet Presentation
Net Book Value (NBV)
Accumulated depreciation would appear on the balance sheet as follows: An asset is reported at cost, the accumulated depreciation is reported as a reduction in the cost to arrive at the net book value of the asset. For example, the asset, building, is reported at $600,000 less the accumulated depreciation of $55,000, which leaves a net book value of $545,000 for the building. The asset, truck, is reported at $25,000 less the accumulated depreciation of $10,000, which leaves a net book value of fifteen thousand dollars. 4

13. Depreciation Income Statement Depreciation for the current year
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Income Statement
Depreciation Expense
Depreciation for the current year
Balance Sheet
Accumulated Depreciation
Total depreciation recorded as of balance sheet date
Depreciation expense is the calculated amount of depreciation for the current accounting period that is reported on the income statement. Accumulated depreciation, a contra-asset account, includes the total amount of depreciation that has been recorded for an asset as of the balance sheet date.

14. Depreciation Methods
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In the early years of an asset’s life, accelerated depreciation methods result in greater depreciation expense and lower net income than straight-line depreciation.
Management may decide to use an accelerated depreciation method rather than a straight-line method for the financial accounting records. In the early years of an asset's life, accelerated depreciation methods result in greater depreciation expense and lower net income than straight-line depreciation.

15. Straight-Line Methods Sum-of-the-years’-digits
Depreciation Methods
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Straight-Line Methods
Straight-line
Units of production
Accelerated Methods
Sum-of-the-years’-digits
Declining balance
Straight-line methods include straight-line and units of production. Accelerated methods include sum-of-the-year digits and declining balance.

16. Cost - Estimated Salvage Value Estimated Useful Life
Straight-Line Method
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Formula
Cost - Estimated Salvage Value Estimated Useful Life
Annual Depreciation
Expense =
EXAMPLE
On December 31, 2007, equipment was purchased for $50,000 cash. The equipment has an estimated useful life of 5 years and an estimated residual value of $5,000.
The straight-line method for calculating annual depreciation expense is: Cost minus the estimated salvage value (the depreciable amount) of the asset divided by its estimated useful life. On December 31, 2007, equipment was purchased for $50,000 cash. The equipment has an estimated useful life of five years and an estimated residual value of five thousand dollars. SL

17. Cost - Estimated Salvage Value Estimated Useful Life
Straight-Line Method
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Cost - Estimated Salvage Value Estimated Useful Life
Annual Depreciation
Expense =
Annual Depreciation
Expense
$50,000 - $5,000 5 years =
Therefore, $50,000 less $5,000 (salvage value) divided by five years estimated useful life equals $9,000 annual depreciation expense.
Annual Depreciation
Expense =
$9,000 SL

18. Depreciation stops when
Straight-Line Method
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Depreciation stops when
NBV=SALVAGE VALUE
A depreciation schedule is used to calculate: the annual depreciation expense, the annual accumulated depreciation amount, the accumulated depreciation balance, and the un-depreciated balance or net book value (NBV) in separate columns. The columns are summed. Depreciation expense and accumulated depreciation totals should equal $45,000, the depreciable amount, and the NBV column should equal $5,000, the salvage value. Note that the asset cannot be depreciated below its salvage value of five thousand dollars. SL
Salvage Value

19. Straight-Line Method SL
L O 3
Depreciation Expense is reported on the Income Statement.
Depreciation Expense
Book Value is reported on the Balance Sheet.
Depreciation expense is reported on the income statement. Accumulated depreciation is used to calculate the net book value of the asset, which is reported on the balance sheet. SL

20. Units-of-Production Method
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Depreciation
Expense Per Unit Produced =
Cost - Estimated Salvage Value
Estimated Total Units to be Made
Step 1:
Step 2:
Annual Depreciation
Expense =
Depreciation
Expense Per Unit
Produced ×
Number of Units Produced during the Year
Units-of-production method calculates the depreciation expense per unit produced. The formula is similar to the straight-line method. Cost minus estimated salvage value divided by the estimated total units to be made rather, than the asset's useful life. Once the per unit depreciation expense is calculated, it is multiplied by the number of units produced during the year to calculate the annual depreciation expense.

21. Units-of-Production Method
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On December 31, 2007, equipment was purchased for $50,000 cash. The equipment is expected to produce 100,000 units during its useful life and has an estimated salvage value of $5,000. If 22,000 units were produced in 2008, what is the amount of depreciation expense?
On December 31, 2007, equipment was purchased for $50,000 cash. The equipment is expected to produce 100,000 units during its useful life and has an estimated salvage value of $5,000. If 22,000 units were produced in 2008, what is the amount of depreciation expense?

22. Units-of-Production Method
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Depreciation
Expense Per Unit Produced
$50, $5,000
100,000
Step 1: =
$.45 per unit =
Step 2:
Annual Depreciation
Expense =
$.45 per unit ×
22,000
$9,900
Depreciation expense per unit equals $50,000 minus $5,000 (salvage value) divided by 100,000 estimated total units produced. Depreciation expense equals $0.45 per unit. The annual depreciation expense is calculated by multiplying the per unit depreciation expense of $0.45 by the 22,000 units produced this year. Annual depreciation expense equals $9,900.

23. Units-of-Production Method
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The units-of-production depreciation schedule is used to record: the number of units produced each year, the annual depreciation expense, the accumulated depreciation balance, and the undepreciated balance or net book value (NBV). Total number of units equals the estimated 100,000 units. Depreciation expense and the accumulated depreciation balance total $45,000, the depreciable amount, and the undepreciated balance equals $5,000, the salvage value. No depreciation expense is recorded if the equipment is idle, as in the year 2010.
Salvage Value
No depreciation expense is recorded if the equipment is idle.

24. Declining-Balance Method
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Annual Depreciation Expense =
Double the Straight-line Depreciation Rate ×
Book Value at Beginning of Year 1
Life in Years
× 2
Since we are using 2 times the straight-line rate, this is called the Double-Declining-Balance Method.
The declining-balance method calculates depreciation expense at double the straight-line depreciation rate. To calculate the double straight-line rate, divide one by the estimated number of years of useful life and then multiply that number by two. Since we are using two times the straight-line rate, this is called the Double-Declining-Balance Method.

25. Declining-Balance Method
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On December 31, equipment was purchased for $50,000 cash. The equipment has an estimated useful life of 5 years and an estimated residual value of $5,000.
Calculate the depreciation expense for 2008 and 2009.
On December 31, 2007, equipment was purchased for $50,000 cash. The equipment has an estimated useful life of five years and an estimated residual value of $5,000. Calculate the depreciation expense for 2008 and 2009.

26. Declining-Balance Method
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Double the Straight-line Depreciation Rate
2 × 20% = 40%
Depreciation Expense for 2008
40% × $50,000 = $20,000
First, calculate the rate to be used. Divide one by the estimated number of years of useful life: one divided by five equals 0.20 or a 20 percent straight-line rate. Then multiply 20 percent by two for double the straight-line rate, which equals 40 percent. This method always uses net book value at the beginning of the year. Net book value is determined by subtracting total accumulated depreciation from the original asset cost.
To calculate the 2008 depreciation expense: multiply the asset cost, $50,000 by 40 percent. Depreciation expense equals $20,000.
Depreciation expense for 2009 is calculated by first calculating the declining balance of the asset's cost, which equals $50,000 minus $20,000, or $30,000. Next, $30,000 is multiplied by 40 percent, which equals $12,000, the 2009 depreciation expense.
Depreciation Expense for 2009
40% × ($50,000 - $20,000) = $12,000
Net Book Value at Beginning of Year

27. Declining-Balance Method
L O 3
Note that the declining-balance schedule also is used to report: the depreciation expense, the accumulated depreciation, and the undepreciated balance (NBV). However, the salvage value is not deducted from the undepreciated balance to calculate depreciation expense. You must be careful not to depreciate the asset below the salvage value. In year 2012, the calculated depreciation expense equals $2,592, but that amount would reduce the NBV to $3,888, which is below salvage value.
Below salvage value
($50,000 – $43,520) × 40% = $2,592

28. Declining-Balance Method
L O 3
In the latter years, depreciation is limited to NBV times 40 percent, but the asset cannot be depreciated below salvage value. In 2012, the depreciation expense is limited to $1,480 ($6,480 minus $5,000 salvage value).
$1,480 = 6,480 – 5,000 salvage value
In the latter years, depreciation is limited to NBV X 40%, but
the asset cannot be depreciated below salvage value.

29. Comparing Depreciation Methods
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Life in Years
Annual Depreciation
Straight-Line
Life in Years
Annual Depreciation
Units-of-Production
Life in Years
Annual Depreciation
Double-Declining-Balance
Total Depreciation at end of useful life will be the same regardless of Depreciation method
The three depreciation methods allocated the cost of the asset minus its salvage value, $45,000, over its useful life, five years, but the depreciation expense calculated by the different methods varied annually. The straight-line method recorded the asset's value decreasing by the same amount over five years. The units-of-production method recorded the asset's value decreasing as it is used in production. The double-declining-balance method recorded the asset's value decreasing more quickly over the first years of service.

30. Depreciation Methods Used by 670 Companies
L O 3
For financial reporting purposes, the straight-line method is the method primarily used by large companies.
Source: Accounting Trends and Techniques, 2005, AICPA.

31. Depreciation for Tax Reporting
L O 4
Most corporations use the Modified Accelerated Cost Recovery System (MACRS) for tax purposes.
MACRS depreciation provides for rapid write-off of an asset’s cost in order to stimulate new investment.
Most corporations use the Modified Accelerated Cost Recovery System (MACRS) for tax purposes. MACRS depreciation provides for rapid write-off of an asset's cost in order to stimulate new investment. MACRS ignores salvage values when computing annual depreciation. Additionally, the Internal Revenue Service determines the useful life of asset classes.
Salvage values are ignored
Useful lives are set by the Internal Revenue Service

32. Maintenance and Repair Expense
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Preventative maintenance expenditures and routine repair costs are clearly expenses of the period in which they are incurred.
Preventative maintenance expenditures and routine repair costs are clearly expenses of the period in which they are incurred.

33. Disposal of Depreciable Assets
Update depreciation to the date of disposal.
Journalize disposal by:
Recording cash received (debit).
Removing accumulated depreciation (debit).
Recording a gain (credit)
or loss (debit).
Removing the asset cost (credit).
When depreciable assets are sold, update the depreciation to the date of disposal and journalize the disposal. Debit cash for the sales price; debit the accumulated depreciation account to remove the balance from the accounting records; credit the asset's cost account to remove the asset from the accounting records; then either debit a loss or credit a gain to record a loss or gain on the sale. Gains or losses from asset disposals appear on the income statement.

34. Disposal of Depreciable Assets
Determining Gain or Loss
Cash > BV, record a gain (credit).
Cash < BV, record a loss (debit).
Cash = BV, no gain or loss.
If Cash is greater than the Book Value, record a gain (credit). If Cash is less than the Book Value, record a loss (debit). If Cash equals the Book Value, there is no gain or loss.
Recording a gain (credit)
or loss (debit).

35. Selling Plant Assets On 9/30/2008, Evans Company sells a machine
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On 9/30/2008, Evans Company sells a machine
Date purchased
1/1/2003
Cost
$100,000
Depreciation Method
Straight Line
Salvage Value
$20,000
Estimated Useful Life
10 years
Selling price
$60,000
On September 30, 2008, Evans Company sells a machine that originally cost $100,000 for $60,000 cash. The machine was placed in service on January 1, It was depreciated using the straight-line method with an estimated salvage value of $20,000 and a useful life of ten years.

36. Selling Plant Assets
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The amount of depreciation recorded on September 30, 2008, to bring depreciation up to date is:
a. $8,000.
b. $6,000.
c. $4,000.
d. $2,000.
The amount of depreciation recorded on September 30, 2008, to bring depreciation up to date is:
$8,000.
$6,000.
$4,000.
d. $2,000.

37. Selling Plant Assets
L O 6
The amount of depreciation recorded on September 30, 2008, to bring depreciation up to date is:
a. $8,000.
b. $6,000.
c. $4,000.
d. $2,000.
Annual Depreciation:
($100,000 - $20,000) ÷ 10 Yrs. = $8,000
Depreciation to Sept. 30:
9/12 × $8,000 = $6,000
The answer is b: $6,000.
Annual Depreciation: $100,000 minus $20,000 divided by ten years equals $8,000. Depreciation to September 30th: 9/12 times $8,000 equals $6,000.

38. Selling Plant Assets
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After updating the depreciation, the machine’s net book value on September 30, 2008, is:
a. $54,000.
b. $46,000.
c. $40,000.
d. $60,000.
After updating the depreciation, the machine's net book value on September 30, 2008, is: $
$46,000.
$40,000.
$60,000.

39. Selling Plant Assets
L O 6
After updating the depreciation, the machine’s book value on September 30, 2008, is:
a. $54,000.
b. $46,000.
c. $40,000.
d. $60,000.
The answer is a: $54,000 ($100,000 cost less accumulated depreciation of $46,000 equals $54,000, the net book value.

40. The machine’s sale resulted in:
Selling Plant Assets
L O 6
The machine’s sale resulted in:
a. a gain of $6,000.
b. a gain of $4,000.
c. a loss of $6,000.
d. a loss of $4,000.
The machine's sale resulted in:
a gain of $6,000.
a gain of $4,000.
a loss of $6,000.
a loss of $4,000.

41. The machine’s sale resulted in:
Selling Plant Assets
L O 6
The machine’s sale resulted in:
a. a gain of $6,000.
b. a gain of $4,000.
c. a loss of $6,000.
d. a loss of $4,000.
The answer is a: a gain of $6,000 ($100,000 cost less accumulated depreciation $46,000 equals $54,000, the net book value. The sales price (cash received) of $60,000 less the $54,000 net book value yields a $6,000 gain on the sale of the machine.
Now, you are ready to prepare the journal entry to record the sale of the asset.

42. Selling Plant Assets L O 6
The journal entry to record the sale on September 30th requires a debit to cash for $60,000, a debit to accumulated depreciation for $46,000, a credit to machine for its cost of $100,000, and a credit to gain on sale for the difference of $6,000.

43. Assets Acquired by Capital Lease
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An operating lease is an ordinary lease for the use of an asset that does not involve any attributes of ownership.
A capital lease results in the lessee (renter) assuming virtually all of the benefits and risks of ownership for the leased asset.
An operating lease is an ordinary lease for the use of an asset that does not involve any attributes of ownership. A capital lease results in the lessee (renter) assuming virtually all of the benefits and risks of ownership for the leased asset.

44. Assets Acquired by Capital Lease
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*Capital Lease Characteristics:
Transfers ownership to lessee.
Includes nominal purchase price.
Lease term is ³ 75% of life of asset.
Present value of lease payments is ³ 90% of fair value of asset.
Only 1 criteria needs to be met!
To be classified as a capital lease, the lease must:
Transfer ownership to lessee.
Include a nominal purchase price.
Lease term must be equal to or greater than 75 percent of the life of the asset.
Present value of the lease payments is equal to or greater than 90 percent of the fair value of the asset.
A lease is classified as a capital lease if it meets any one of these characteristics.

45. Buy or Lease an Asset? Buy or Lease ? Buy Lease
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Buy
Lease
Buy or Lease ?
Computer equipment Cost: $217,765 Issue a 10%, 6 year Note Payable Annual payment: $50,000.
Computer Equipment Annual payment: $50, Present Value of Lease Payments: 10%, 6 years = $217,765
Should you buy or lease an asset? To buy the computer equipment at a cost of $217,765, you could issue a ten percent, six-year note payable with an annual payment of $50,000. Or, you could lease the computer equipment at an annual lease of $50,000. Note that the present value of the lease payments, at ten percent for six years, is $217,765.

46. Buy or Lease an Asset? Buy Lease
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Buy
Lease
If purchased, the computer equipment is reported on the balance sheet as an asset and a note payable at a value of $217,765. Annual depreciation will be recorded in the accumulated depreciation account. The annual note payment will decrease the balance in note payable. Depreciation expense and interest expense as incurred will be reported on the income statement.
If leased, the computer equipment is reported on the balance sheet as an asset and a note payable at a value of $217,765. Annual depreciation is recorded in the accumulated depreciation account. The annual lease payment will decrease the lease liability. Depreciation expense and interest expense as incurred would be reported on the income statement.
Leasing the computer is essentially the same as buying it. Both methods of acquiring the asset yield the same economic impact and the same effect on the financial statements.
Leasing the computer is essentially the same as buying it. Both methods of acquiring the asset yield the same economic impact and the same effect on the financial statements.

47. Intangible Assets Intangible Assets
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Noncurrent assets without physical substance.
Often provide exclusive rights or privileges.
Intangible Assets
Intangible assets are noncurrent assets without physical substance. The useful life of intangible assets is often difficult to determine. Intangible assets often provide exclusive rights or privileges, and they are usually acquired for operational use.
Usually acquired for operational use.
Useful life is often difficult to determine.

48. Intangible Assets Patents
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Patents
Copyrights
Leaseholds
Leasehold Improvements
Franchises and Licenses
Trademarks and Trade Names
Goodwill
Record at current cash equivalent cost, including purchase price, legal fees, and filing fees.
Intangible assets are recorded at current cash equivalent cost, including purchase price, legal fees, and filing fees. Intangible assets include: patents, copyrights, leaseholds, leasehold improvements, franchises and licenses, trademarks, trade names, and goodwill.

49. Intangible Assets
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Amortization is the term used to refer to the allocation of the cost of an intangible asset over its useful life. The process is similar to straight-line depreciation.
Amortization for these intangibles:
Patent = 20 years
Registered Trademark = Unlimited life
Copyright = Life of artist + 70 years
Use straight-line method.
Amortize over legal life or useful life, whichever is less
Amortization is the term used to refer to the allocation of the cost of an intangible asset over its useful life. The process is similar to straight-line depreciation. Amortization for a patent equals 20 years, a registered trademark has an unlimited life, and a copyright equals life of the artist plus 20 years. Using the straight-line method, an intangible asset is amortized over its legal or useful life, whichever is less.

50. Goodwill Goodwill Occurs when one company buys another company.
The amount by which the purchase price exceeds the fair market value of net assets acquired.
Only ‘purchased’ goodwill is an intangible asset.
Goodwill occurs when one company buys another company. Only ‘purchased’ goodwill is an intangible asset. Goodwill is the amount by which the purchase price exceeds the fair market value of net assets acquired.

51. Goodwill
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Eddy Company paid $1,000,000 to purchase all of James Company’s assets and assumed liabilities of $200,000. The acquired assets were appraised at a fair value of $900,000.
Eddy Company paid $1 million to purchase all of James Company's assets and assumed liabilities of $200,000. The acquired assets were appraised at a fair value of $900,000.

52. Goodwill
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What amount of goodwill should be recorded on Eddy Company’s books?
a. $100,000.
b. $200,000.
c. $300,000.
d. $400,000.
What amount of goodwill should be recorded on Eddy Company's books?
$100,000.
$200,000.
$300,000
$400,000.

53. Goodwill
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What amount of goodwill should be recorded on Eddy Company’s books?
a. $100,000
b. $200,000
c. $300,000
d. $400,000
The answer is c: $300,000 (FMV of assets $900,000 less debt assumed $200,000 equals $700,000, the FMV of the net assets). The purchase price $1 million minus $700,000 (FMV of net assets) equals $300,000, the value of purchased goodwill.

54. Goodwill
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Recently, the FASB issued a non-amortization approach to account for purchased goodwill.
Under the impairment approach, goodwill will only be amortized when the initial recorded value of the asset has deteriorated.
Recently, the FASB issued a non-amortization approach to account for purchased goodwill. Under the impairment approach, goodwill will only be amortized when the initial recorded value of the asset has deteriorated.

55. Examples: oil, coal, gold
Natural Resources
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Total cost, including exploration and development, is charged to depletion expense over periods benefited.
Extracted from the natural environment and reported at cost less accumulated depletion.
The total cost of a natural resource, including exploration and development, is charged to depletion expense over the periods benefited. A natural resource is extracted from the natural environment and reported at cost less accumulated depletion.
Examples: oil, coal, gold

56. The process is similar to units-of-production depreciation.
Natural Resources
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Depletion is the term used to refer to the allocation of the cost of a natural resource over its useful life.
The process is similar to units-of-production depreciation.
Depletion is the term used to refer to the allocation of the cost of a natural resource over its useful life. The process is similar to units-of-production depreciation.

57. Other Noncurrent Assets
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Long-term Investments
Notes Receivables (with maturities more than a year after the balance sheet date)
Long-term Deferred Income Tax Assets
Other noncurrent assets include long-term investments, notes receivables (with maturities more than a year after the balance sheet date), and long-term deferred income tax assets. When these assets become current, they will be reclassified to current assets.
When these assets become current, they will be reclassified to current assets.

58. Time Value of Money
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Future Value: the value at some future date of an investment made today.
Today year years years years
$ 1,000
Invested at 10% has a future value of
$ 1,464
Present Value: the value now of an amount
to be received or paid at some future date.
Future value and present value are time value of money applications. The future value of money is used to determine the value at some future date of an investment made today. Future value refers to the amount accumulated when interest on an investment is compounded for a given number of periods. For example, an investment of $1,000 today will return $1,464 four years from now if it is invested at a ten percent interest rate.
Present value analysis involves looking at the same compound interest concept from the opposite perspective. The present value of money is used to determine the value now of an amount to be received or paid at some future date. If a specified amount of money is needed in four years, then calculate the amount of money to invest today at a given rate of interest to yield that specified amount. For example, if $1,464 is needed in four years, then invest $1,000 today at a ten percent interest rate.
Today year years years years
$ 1,000
Is the present value at 10% of
$ 1,464

59. End of Chapter 6
End of Chapter 6