2. A business uses plant assets for more than one accounting period, so it spreads the cost of these assets over a number of years. A business must also calculate depreciation of certain plant assets.
Glencoe Accounting
Glencoe Accounting
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

3. Explain the need to depreciate plant assets.
Identify plant assets.
Explain the need to depreciate plant assets.
Calculate annual depreciation of plant assets.
Calculate partial-year depreciation of plant assets.
Determine the book value of a plant asset.
Record depreciation of plant assets.
Prepare depreciation schedules.
Glencoe Accounting
Glencoe Accounting
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

4. Key Terms plant assets depreciation disposal value
Plant Assets and Equipment
Section 23.1
Key Terms
plant assets
depreciation
disposal value
straight-line depreciation
Glencoe Accounting

5. Current and Plant Assets
Plant Assets and Equipment
Section 23.1
Land
plant assets
Long-lived assets that are used in the production or sale of other assets or services over several accounting periods.
Office Equipment
Buildings
Examples of Plant Assets
Store Equipment
Delivery Equipment
Glencoe Accounting

6. Estimating Depreciation of a Plant Asset
Plant Assets and Equipment
Section 23.1
Cost
Estimated Useful Life
Factors Used to Calculate Depreciation
Estimated Disposal Value
Depreciation Method
depreciation
Allocating a plant asset’s cost over its useful life.
Glencoe Accounting

7. Estimating Depreciation of a Plant Asset
Plant Assets and Equipment
Section 23.1
The cost of a plant asset is equal to the purchase price plus sales taxes, delivery charges, and installation charges.
Glencoe Accounting

8. Estimating Depreciation of a Plant Asset
Plant Assets and Equipment
Section 23.1
Estimated useful life can be calculated using past experiences.
Glencoe Accounting

9. Estimating Depreciation of a Plant Asset
Plant Assets and Equipment
Section 23.1
The IRS publishes guidelines on disposal values.
disposal value
The estimated value of a plant asset at its replacement time; also called salvage value.
Glencoe Accounting

10. Estimating Depreciation of a Plant Asset
Plant Assets and Equipment
Section 23.1
Depreciation Methods
Straight-Line Depreciation Method
straight-line depreciation
A method that equally distributes the depreciation expense over an asset’s estimated useful life.
Units-of-Production Method
Accelerated Depreciation Method
Glencoe Accounting

11. Estimating Depreciation of a Plant Asset
Plant Assets and Equipment
Section 23.1
Federal Income Tax Laws for Depreciating Assets
The Accelerated Cost Recovery System (ACRS)
Modified Accelerated Cost Recovery System (MARCS)
Allows a business to recognize depreciation over a shorter period of time and does not consider disposal value.
Used for tax accounting only.
Glencoe Accounting

12. Key Terms accumulated depreciation book value Section 23.2
Calculating Depreciation
Key Terms
accumulated depreciation
book value
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13. Calculating Depreciation
Section 23.2
Calculating Depreciation
Calculate Depreciation
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14. Calculating Depreciation
Section 23.2
Calculating Depreciation
Straight-Line Depreciation
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15. Calculating Depreciation
Section 23.2
Calculating Depreciation
Straight-Line Depreciation
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16. Calculating Depreciation
Section 23.2
Calculating Depreciation
Declining-Balance Depreciation
The annual depreciation expense is the asset’s book value multiplied by the declining-balance rate.
This rate can vary but it is usually double the straight line rate.
Glencoe Accounting

17. Plant Asset Records Information in the Plant Asset Record 1
Section 23.2
Calculating Depreciation
Information in the Plant Asset Record 1
Date of Purchase 2
Original Cost 3
Estimated Useful Life 4
Annual Depreciation 5
Accumulated Depreciation 6
Book Value at the End of Each Year
Glencoe Accounting

18. accumulated depreciation
Plant Asset Records
Section 23.2
Calculating Depreciation
See page 678
accumulated depreciation
The total amount of depreciation for a plant asset that has been recorded up to a specific point in time.
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19. The original cost of a plant asset minus accumulated depreciation.
Plant Asset Records
Section 23.2
Calculating Depreciation
See page 678
book value
The original cost of a plant asset minus accumulated depreciation.
Glencoe Accounting

20. Adjusting for Depreciation Expense
Accounting for a Depreciation Expense at the End of a Year
Section 23.3
See page 680
Information to make depreciation adjustments comes from the plant asset records. Each type of asset has its own depreciation expense summary.
Glencoe Accounting

21. Adjusting for Depreciation Expense
Accounting for a Depreciation Expense at the End of a Year
Section 23.3
Depreciation Expense
Two accounts affected by the adjustment for depreciation:
Accumulated Depreciation
Glencoe Accounting

22. Adjusting for Depreciation Expense
Accounting for a Depreciation Expense at the End of a Year
Section 23.3
The debit and credit rules followed by the Accumulated Depreciation account are opposite those for an asset account.
Glencoe Accounting

23. Adjusting for Depreciation Expense
Accounting for a Depreciation Expense at the End of a Year
Section 23.3
During the year, Depreciation Expense has a zero balance because the adjustment for depreciation is recorded at the end of the period.
The account is closed to Income Summary at the end of the year.
Glencoe Accounting

24. Adjusting for Depreciation Expense
Accounting for a Depreciation Expense at the End of a Year
Section 23.3
Business Transaction
On December 31 the accounting clerk for The Starting Line records the depreciation for the delivery truck.
See page 681–682
Glencoe Accounting

25. Adjusting for Depreciation Expense
Accounting for a Depreciation Expense at the End of a Year
Section 23.3
Work Sheet with Depreciation Adjustments
See page 682
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26. Adjusting for Depreciation Expense
Accounting for a Depreciation Expense at the End of a Year
Section 23.3
The depreciation expense accounts are reported on the income statement.
See page 684
Glencoe Accounting

27. Adjusting for Depreciation Expense
Accounting for a Depreciation Expense at the End of a Year
Section 23.3
The plant asset and related accumulated depreciation accounts appear in the assets section of the balance sheet.
See page 684
Glencoe Accounting

28. Adjusting and Closing Entries for Depreciation Expense
Accounting for a Depreciation Expense at the End of a Year
Section 23.3
Adjustment
Record the December 31 adjusting journal entries for depreciation.
See page 685
Glencoe Accounting

29. Adjusting and Closing Entries for Depreciation Expense
Accounting for a Depreciation Expense at the End of a Year
Section 23.3
Adjustment
Record the December 31 adjusting journal entries for depreciation.
See page 685
Glencoe Accounting

30. Adjusting and Closing Entries for Depreciation Expense
Accounting for a Depreciation Expense at the End of a Year
Section 23.3
Closing
Second Closing Entry—Depreciation accounts only.
See page 686
Glencoe Accounting

31. Adjusting and Closing Entries for Depreciation Expense
Accounting for a Depreciation Expense at the End of a Year
Section 23.3
Closing
Second Closing Entry—Depreciation accounts only.
See page 686
Glencoe Accounting

32. Question 1
On March 1 Lakeview Landscape purchased a new dump truck for $45,000. The truck will have a useful life of 10 years and a disposal value of $7, (a) Using straight-line depreciation, calculate the yearly depreciation of the truck. (b) How much could you depreciate in Year 1?
Step 1: Subtract the disposal value from the cost of the truck: $45,000 - $7,500 = $37,500 to be depreciated
Step 2: Divide the amount to be depreciated by the useful life of the asset: $37,500 ÷ 10 = $3,750 per year
Calculate depreciation in Year 1 (for 10 months, March 1 to December 31): $3,750 x 10/12 = $3,125 a) b)
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33. Question 2
Why would a corporation choose to use an accelerated depreciation system such as declining-balance depreciation instead of straight-line depreciation?
An accelerated depreciation schedule allows the corporation to take a higher expense early in the life of the asset. Since money today is more desirable than money one year from now, it allows the corporation to realize tax benefits early.
Glencoe Accounting

34. End of