1. Amortization Continued

2. If annual amortization is inadequate or excessive, a change in the periodic amount should be made. When a change is made, 1. there is no correction of previously recorded amortization expense and 2. amortization expense for current and future years is revised. REVISING PERIODIC AMORTIZATION Revised amortization expense = Net book value at time of revision – revised salvage value Remaining useful life

3. Ordinary repairs are expenditures to maintain the operating efficiency and expected productive life of the capital asset. They are debited to Repairs Expense as incurred and are often referred to as operating expenditures. Additions and improvements are costs incurred to increase the operating efficiency, productive capacity, or expected useful life of the capital asset. 1. Expenditures are usually material in amount and occur infrequently during the period of ownership. 2. Since additions and improvements increase the company’s investment in productive facilities, they are debits to the capital asset affected, and are referred to as capital expenditures. EXPENDITURES DURING USEFUL LIFE

4. Capital assets may be disposed of by a) retirement b) sale, or c) exchange CAPITAL ASSET DISPOSALS

5. Amortization for the fraction of the year to the date of disposal must be recorded Amortization expensexxx Accumulated amortization xxx Calculate net book value Net book value = Cost - accumulated amortization 1 2

6. CAPITAL ASSET DISPOSALS Compare net book value to sale proceeds Proceeds > Net book value = gain (cr.) Proceeds < Net book value = loss (dr.) Record disposition, removing cost of asset and accumulated amortization, and record proceeds (if any) and gain or loss on disposition (if any) 3 4 Cashxxx Accumulated amortizationxxx Capital assetxxx Gain on disposalxxx

7. Example Purchase Price of Truck : $75000 Accumulated Amortization: 70000 We resell it for $6500 cash.

8. Natural resources consist of standing timber and underground deposits of oil, gas, and minerals. Natural resources, frequently called wasting assets, have two distinguishing characteristics: 1. They are physically extracted in operations. 2. They are replaceable only by an act of nature. NATURAL RESOURCES

9. The acquisition cost of a natural resource is the cash or cash equivalent price necessary to acquire the resource and prepare it for its intended use. If the resource is already discovered, cost is the price paid for the property. ACQUISITION COST

10. AMORTIZATIONAMORTIZATION The units-of-activity method is generally used to calculate amortization, because periodic amortization generally is a function of the units extracted during the year. Amortizable Cost = (Cost – Residual Value + Restoration Costs) Total Estimated Units Amortization Cost per Unit Amortization Cost per Unit Number of Units Extracted and Sold Amortization Expense

11. STATEMENT PRESENTATION OF AMORTIZATION Accumulated Amortization, a contra asset account, is deducted from the cost of the natural resource in the balance sheet as follows: