1. AC113 Accounting for Non- Accounting Majors Seminar: Unit 8 Super Bowl Sunday Emil Koren, CPA, MBA

2. Welcome Introduction Fixed Assets Revenue vs. Capital Expenditures Depreciation – Straight Line Method – Double Declining Balance Method Disposal of Fixed Assets Natural Resources Intangible Assets Exercises E7-2 and E7-10

3. Introductions Please read Chapter 7 Read and study the Vocabulary for this Unit Post to the Discussion question Do the Assignment Take the Quiz

4. Fixed Assets Useful life of over one year Exist physically-tangible Owned and used in normal operations Not offered for re-sale

5. Revenue vs. Capital Expenditures Revenue Expenditure Ordinary repairs Ordinary maintenance Capital Expenditures Asset Improvements Adds service value to asset Extraordinary repair Extends assets useful life

6. Depreciation Systematic method to record the expense of an asset over its useful life Need: – Cost – Expected useful life – Estimated residual value Depreciation Expense – Expense Account Accumulated Depreciation – Contra Asset – The total of all depreciation to date

7. Straight Line Method Cost – Residual Value/ Useful Life

8. Double Declining Balance Method Determine Straight line rate Double the straight line rate Use this number to multiply the cost (Book Value)of the asset to get to first year depreciation Reduce the book value by the depreciation Use the doubled straight line rate and multiply by the NEW book value to get to next years depreciation. Continue process into future years

9. Disposal of Fixed Assets Book Value = Cost less Accumulated Depreciation Discarding Fixed Assets – Determine Book Value – This is the loss Selling Fixed asset – Determine Book Value – The difference is a gain or loss on sale

10. Natural Resources Depletion Rate Cost of Natural Resource/Estimated units of that Resource Natural Resources include:

11. Intangible Assets Right to use or profit from an asset or idea Patents – Right to exclusive manufacturing for 20 years Copyrights – Right to publish and sell for life plus 70 years Trademarks – Rights to use for 10 years-renewable Goodwill – Excess of purchase price over cost of an asset

12. Exercise 7-2 Tree cutting, land clearing, grading Part of the cost of the Land? Should they be depreciated

13. Answer:E7-2 Yes! All expenditures incurred for purpose of making the land suitable should be recorded as part of the land No! Land is not depreciated

14. Exercise 7-10 Storage Tank – Cost $172,000 – Residual Value $20,000 Depreciation-first two years – Straight Line – Double Declining Balance

15. Answer:E7-10 172,000-20,000 = $152,000 $152,000/8 = $19,000 1/8 = 0.125 0.125 X 2 = 0.25 or 25% Year 1: 25% X $172,000 = $43,000 Year 2: 172,000 – 43,000 = $129,000 25% X 129,000 = $32,250

16. Questions and Comments ?