2. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting 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 AccountingCopyright © by The McGraw-Hill Companies, Inc. All rights reserved.

3. Glencoe Accounting 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 AccountingCopyright © by The McGraw-Hill Companies, Inc. All rights reserved.

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

5. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Current and Plant Assets Plant Assets and Equipment Section 23.1 Examples of Plant Assets plant assets Long-lived assets that are used in the production or sale of other assets or services over several accounting periods. Land Buildings Delivery Equipment Store Equipment Office Equipment

6. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Estimating Depreciation of a Plant Asset Plant Assets and Equipment Section 23.1 Factors Used to Calculate Depreciation Cost Estimated Useful Life Estimated Disposal Value Depreciation Method depreciation Allocating a plant asset’s cost over its useful life.

7. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting 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.

8. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Estimating Depreciation of a Plant Asset Plant Assets and Equipment Section 23.1 Estimated useful life can be calculated using past experiences.

9. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting 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.

10. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Estimating Depreciation of a Plant Asset Plant Assets and Equipment Section 23.1 straight-line depreciation A method that equally distributes the depreciation expense over an asset’s estimated useful life. Depreciation Methods Straight-Line Depreciation Method Units-of-Production Method Accelerated Depreciation Method

11. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting 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.

12. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Key Terms accumulated depreciation book value Calculating Depreciation Section 23.2

13. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Calculating Depreciation Section 23.2 Calculate Depreciation

14. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Calculating Depreciation Section 23.2 Straight-Line Depreciation

15. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Calculating Depreciation Section 23.2 Straight-Line Depreciation

16. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Calculating Depreciation Section 23.2 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.

17. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Plant Asset Records Calculating Depreciation Section 23.2 Information in the Plant Asset Record 1 2 3 4 5 6 Date of Purchase Original Cost Estimated Useful Life Annual Depreciation Accumulated Depreciation Book Value at the End of Each Year

18. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Plant Asset Records Calculating Depreciation Section 23.2 accumulated depreciation The total amount of depreciation for a plant asset that has been recorded up to a specific point in time. See page 678

19. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Plant Asset Records Calculating Depreciation Section 23.2 book value The original cost of a plant asset minus accumulated depreciation. See page 678

20. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Adjusting for Depreciation Expense Accounting for a Depreciation Expense at the End of a Year Section 23.3 Information to make depreciation adjustments comes from the plant asset records. Each type of asset has its own depreciation expense summary. See page 680

21. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Adjusting for Depreciation Expense Accounting for a Depreciation Expense at the End of a Year Section 23.3 Two accounts affected by the adjustment for depreciation: Depreciation Expense Accumulated Depreciation

22. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting 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.

23. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting 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.

24. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting 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

25. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Adjusting for Depreciation Expense Accounting for a Depreciation Expense at the End of a Year Section 23.3 See page 682 Work Sheet with Depreciation Adjustments

26. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Adjusting for Depreciation Expense Accounting for a Depreciation Expense at the End of a Year Section 23.3 See page 684 The depreciation expense accounts are reported on the income statement.

27. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Adjusting for Depreciation Expense Accounting for a Depreciation Expense at the End of a Year Section 23.3 See page 684 The plant asset and related accumulated depreciation accounts appear in the assets section of the balance sheet.

28. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting 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

29. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting 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

30. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting 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

31. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting 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

32. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting 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 $7,500. (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)

33. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting 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.

34. End of