1. Financial Accounting John J. Wild Sixth Edition John J. Wild Sixth Edition McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Chapter 08 Reporting and Analyzing Long-Term Assets

3. Conceptual Learning Objectives C1: Explain the cost principle for computing the cost of plant assets. C2: Distinguish between revenue and capital expenditures, and account for them. C3: Explain depreciation for partial years and changes in estimates. 8-3

4. Analytical Learning Objectives A1: Compute total asset turnover and apply it to analyze a company’s use of assets. 8-4

5. Procedural Learning Objectives P1: Compute and record depreciation using the straight-line, units-of-production, and declining- balance methods. P2: Account for asset disposal through discarding or selling an asset. P3: Account for natural resource assets and their depletion. P4: Account for intangible assets. P5: Appendix 8A – Account for asset exchanges (see text for details). 8-5

6. Called Property, Plant, & Equipment Plant Assets Expected to Benefit Future Periods Actively Used in Operations Tangible in Nature C 1 8-6

7. Decline in asset value over its useful life Use 2. Allocate cost to periods benefited. 3. Account for subsequent expenditures. Use 2. Allocate cost to periods benefited. 3. Account for subsequent expenditures. Disposal 4. Record disposal. Disposal 4. Record disposal. Plant Assets Acquisition 1. Compute cost. Acquisition 1. Compute cost. C 1 8-7

8. Depreciation is the process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use. Cost Allocation Acquisition Cost (Unused) Balance Sheet (Used) Income Statement Expense Depreciation P1 8-8

9. 1. Straight-line 2. Units-of-production 3. Declining-balance Depreciation Methods P1 8-9

10. Straight-Line Method Cost - Salvage Value Useful life Depreciation Expense for Period = $9,000 Depreciation Expense per Year = $50,000 - $5,000 5 years = P1 8-10

11. Units-of-Production Method Step 2: Depreciation Expense = Depreciation Per Unit × Number of Units Produced in the Period Depreciation Per Unit = Cost - Salvage Value Total Units of Production Step 1: P1 8-11

12. Double-Declining-Balance Method Step 2: Double-declining- balance rate = 2 × Straight-line rate = 2 × 20% = 40% Step 1: Straight-line rate = 100 % ÷ Useful life = 100% ÷ 5 = 20% Step 3: Depreciation expense = Double- declining- balance rate × Beginning period book value 40% × $50,000 = $20,000 for 2011 P1 8-12

13. Recording cash received (debit) or paid (credit). Removing accumulated depreciation (debit). Update depreciation to the date of disposal. Journalize disposal by: Removing the asset cost (credit). Recording a gain (credit) or loss (debit). Recording a gain (credit) or loss (debit). Disposals of Plant Assets P2 8-13

14. Noncurrent assets without physical substance. Useful life is often difficult to determine. Usually acquired for operational use. Intangible Assets Often provide exclusive rights or privileges. Intangible Assets P4 8-14

15. End of Chapter 08 8-15