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Unit 13 Long-Term Assets
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LONG TERM ASSETS TANGIBLE INTANGIBLE Buildings IDENTIFIABLE LIFESPAN
Plant, Property, Equipment Copyrights, Patents, etc. (PPE) Furniture and Fixtures INDETERMINATE LIFESPAN Brands, Trademarks Natural Resources Franchises, Goodwill, etc. Land
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LONG TERM ASSETS TANGIBLE INTANGIBLE Buildings IDENTIFIABLE LIFESPAN
Plant, Property, Equipment Copyrights, Patents, etc. (PPE) Furniture and Fixtures INDETERMINATE LIFESPAN Brands, Trademarks Natural Resources Franchises, Goodwill, etc. Land
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BASKET PURCHASE FACTORY
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LONG TERM ASSETS TANGIBLE INTANGIBLE Buildings IDENTIFIABLE LIFESPAN
Plant, Property, Equipment Copyrights, Patents, etc. (PPE) Furniture and Fixtures INDETERMINATE LIFESPAN Brands, Trademarks Natural Resources Franchises, Goodwill, etc. Land
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BASKET PURCHASE $650,000
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LONG TERM ASSETS DEPRECIATION AMORTIZATION DEPLETION IMPAIRMENT
TANGIBLE INTANGIBLE DEPRECIATION AMORTIZATION Buildings IDENTIFIABLE LIFESPAN Plant, Property, Equipment Copyrights, Patents, etc. (PPE) Furniture and Fixtures INDETERMINATE LIFESPAN Brands, Trademarks Natural Resources DEPLETION Franchises, Goodwill, etc. IMPAIRMENT Land
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LONG TERM ASSETS DEPRECIATION AMORTIZATION DEPLETION IMPAIRMENT
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LONG TERM ASSETS DEPRECIATION AMORTIZATION DEPLETION IMPAIRMENT
EXPENSE EXPENSE ACCUMULATED DEPRECIATION ACCUMULATED AMORTIZATION DEPLETION IMPAIRMENT EXPENSE LOSS ACCUMULATED DEPLETION ASSET
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LONG TERM ASSETS DEPRECIATION AMORTIZATION DEPLETION IMPAIRMENT
Straight-Line method Double Declining-Balance method Straight-Line method Sum-of-the-years Digits method MACRS method Units-of-Production Method DEPLETION IMPAIRMENT Units-of-Production Method Direct Write-Down as needed
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LONG TERM ASSETS DEPRECIATION AMORTIZATION DEPLETION IMPAIRMENT
Straight-Line method ACCELERATED METHODS Double Declining-Balance method Straight-Line method Sum-of-the-years Digits method MACRS method Units-of-Production Method DEPLETION IMPAIRMENT Units-of-Production Method Direct Write-Down as needed
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LONG TERM ASSETS DEPRECIATION AMORTIZATION DEPLETION IMPAIRMENT
Straight-Line method Double Declining-Balance method Straight-Line method Sum-of-the-years Digits method MACRS method Units-of-Production Method DEPLETION IMPAIRMENT Units-of-Production Method Direct Write-Down as needed
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Straight-Line Depreciation
Acquisition Cost $17,000 Depreciable Amount Estimated Useful Life: FOUR YEARS $12,000 “Every penny it takes to get the machine purchased, delivered, put in place, installed, connected, set up, configured, programmed, and READY TO USE” $17, $5,000 Estimated Salvage Value $5,000
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Straight-Line Depreciation
Acquisition Cost $17,000 25% Depreciable Amount 25% Estimated Useful Life: FOUR YEARS $12,000 1 / 4 = 25% 25% 25% Estimated Salvage Value $5,000
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Straight-Line Depreciation
Acquisition Cost $17,000 25% $-3,000 $-3,000 Depreciable Amount 25% Estimated Useful Life: FOUR YEARS $12,000 1 / 4 = 25% 25% $-3,000 25% $-3,000 Estimated Salvage Value $5,000
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Double Declining Balance Depreciation
Acquisition Cost $17,000 Estimated Useful Life: FOUR YEARS “Every penny it takes to get the machine purchased, delivered, put in place, installed, connected, set up, configured, programmed, and READY TO USE” Estimated Salvage Value $5,000
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Double Declining Balance Depreciation
Acquisition Cost $17,000 Estimated Useful Life: FOUR YEARS 1 / 4 = 25% 50% of NET BOOK VALUE Estimated Salvage Value $5,000
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Double Declining Balance Depreciation
Acquisition Cost $17,000 $-8,500 Estimated Useful Life: FOUR YEARS 50% of NET BOOK VALUE $8,500 Estimated Salvage Value $5,000
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Double Declining Balance Depreciation
Acquisition Cost $17,000 $-8,500 Estimated Useful Life: FOUR YEARS $8,500 50% of NET BOOK VALUE $4,250 Estimated Salvage Value $5,000
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depreciate past the Salvage Value!
You NEVER depreciate past the Salvage Value!
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Double Declining Balance Depreciation
Acquisition Cost $17,000 $-8,500 Estimated Useful Life: FOUR YEARS $8,500 50% $-3,500 of NET BOOK VALUE $4,250 Estimated Salvage Value $5,000
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Fleet of 40 carts for use in factory
Each cart cost $10,000 Estimated useful life of 10 years Salvage value of $25,000
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Units of Production Depreciation
Acquisition Cost $300,000 $-33,500 Year 1: 67,000 pieces stamped Depreciable Amount $250,000 $250,000 $33,500 Estimated Useful Life: 500,000 pieces $0.50 per piece stamped Estimated Salvage Value $50,000
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depreciate past the Salvage Value!
You NEVER depreciate past the Salvage Value!
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Units of Production Depreciation
Acquisition Cost $300,000 $-33,500 Depreciable Amount $250,000 $250,000 $33,500 Estimated Salvage Value $50,000
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LONG TERM ASSETS DEPRECIATION AMORTIZATION DEPLETION IMPAIRMENT
Straight-Line method Double Declining-Balance method Straight-Line method Sum-of-the-years Digits method MACRS method Units-of-Production Method DEPLETION IMPAIRMENT Units-of-Production Method Direct Write-Down as needed
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LONG TERM ASSETS DEPRECIATION AMORTIZATION DEPLETION IMPAIRMENT
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LONG TERM ASSETS DEPRECIATION AMORTIZATION DEPLETION IMPAIRMENT
Straight-Line method Double Declining-Balance method Straight-Line method Units-of-Production Method DEPLETION IMPAIRMENT Units-of-Production Method Direct Write-Down as needed
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LONG TERM ASSETS DEPRECIATION AMORTIZATION DEPLETION IMPAIRMENT
EXPENSE EXPENSE ACCUMULATED DEPRECIATION ACCUMULATED AMORTIZATION DEPLETION IMPAIRMENT EXPENSE LOSS ACCUMULATED DEPLETION ASSET
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DISPOSAL OF LONG-TERM ASSETS
Cash Sell this equipment for $25,000 cash 25,000 Accumulated Depreciation Equipment 50,000 31,000 50,000 31,000
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DISPOSAL OF LONG-TERM ASSETS
Cash Sell this equipment for $25,000 cash 25,000 Accumulated Depreciation GAIN on disposal 6,000 Equipment 50,000 31,000 50,000 31,000
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Additional things to know
Salvage Value and Useful Life are estimates As estimates are revised over time, you can re-do your depreciation method beginning at the period you revise your estimates.
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Additional things to know
You stop depreciating once Net Book Value reaches present salvage value. You never depreciate past the current salvage value. A sudden and permanent drop in market value results in an immediate Impairment write-down. The Net Book Value of an asset never increases, even if the market value increases.
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Additional things to know
Companies can choose their depreciation method. Companies can use different methods for different assets. Once a method is chosen for an asset, you must use that method consistently.
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Additional things to know
The Tax Expense on the Balance Sheet is calculated as though the tax return used the Balance Sheet method. The IRS requires that MACRS be used on the Income tax returns Thus, the difference between what companies EXPENSE on the Income Statement, and the amount they actually pay the IRS for that period is kept in an account called “Deferred Taxes” on the balance sheet.
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