1. Recording and Evaluating Capital Resource Activities: Investing
Chapter 16
Recording and Evaluating Capital Resource Activities: Investing

2. What is the Cost of Property, Plant, and Equipment?
PPE is recorded as the total amount required to obtain and get the asset ready for its intended use
Purchase price
Costs incurred to obtain (freight, etc.)
Cost incurred to setup (installation, etc.)

3. What are the Factors Affecting Depreciation Calculations?
Cost
Useful life
Salvage value
Depreciation method

4. How is Depreciation Expense Calculated Using the Different Methods?
Straight-line
(Cost – salvage value)/Useful life (time) = annual depreciation expense
Units-of-production
(Cost – salvage value)/Useful life (units) = depreciation rate
Depreciation rate * annual usage = annual depreciation expense

5. Depreciation Expense Calculated Using the Different Methods Continued
Double-declining balance
2 * straight-line rate = DDB rate
DDB * carrying value = annual depreciation expense

6. What is the Company Doesn’t Purchase (or sell) the Asset at the Beginning (or end) of the Year?
Units-of-production
Multiple the depreciation rate by the actual usage
Straight-line or double-declining balance
Use the mid-year convention or count the time that the asset was in use

7. How Can a Company Dispose of an Asset Before its Useful Life is Over?
Discard
Sell
Exchange
Trade-in

8. What is the Process Involved in Asset Disposals?
Record depreciation to date of disposal
Remove the cost of the asset (CR) and the accumulated depreciation (DR) from the records
Record the assets received (DR) if applicable
Record the cash paid (CR) if applicable
Record the loss incurred (DR) if applicable
Record the gain (CR) if applicable unless the asset is exchanged for a similar asset, if so, reduce the amount recorded for the asset received by the gain

9. Trade-in Example
We have a computer that originally cost $6,000 and has accumulated depreciation of $4,500. We will trade-in this computer for a new computer with a list price of $10,000. The computer company will give us a trade-in allowance of $2,000.
Book value = $6,000 - $4,500 = $1,500.
Cash payment required = $10,000 - $2,000 = $8,000

10. Trade-in Example Continued
Computer received = $10,000
Less assets given up = $9,500
Gain = $500 (not recognized)
Entry:
Computer (new) 9,500
Accumulated depreciation 4,500
Computer (old) 6,000
Cash ,000

11. What are Depletion and Amortization?
The cost of a natural resource is allocated to expense
Typically, units-of-production method used
Amortization
The cost of an intangible asset is allocated to expense
Typically, straight-line method is used