Chapter 8 Flashcards
(15 cards)
Expenditure
Any cash disbursement
Capital Expenditure
Cash disbursement resulting from purchase of long term asset and preparing it for use
Revenue Expenditure
Cash disbursement associated to long term asset that will no5 have benefits after 1 year
Capitalization policies
Policies of company to decide if an Expenditure should be capital or revenue
3 criteria for capital expenditure
- Will it benefit business for more than 1 accounting period
- Will it enhance an asset
- Is the dollar amount material
Controlling account
Parent account to a sub ledger
3 types of depreciation
- Usage-based depreciation method - Units of production
- Time-based depreciation method - straight line method
- Accelerated time-based depreciation method- DDB - double declining balance
Usage based depreciation method - 7nits of production
(Cost -residual value)/#units in life = depreciation/unit * #units = depreciation
DDB
Carrying amount x 2/n
Where n is estimated life
Another name for carrying amount
Net book value
Half life rule
Records depreciation for 1/2 year to matter when it is bought
Compotentization
Each major component of a unit has it’s own estimated life and depreciation
Recoverable amount
The fair value - how much asset could be sold for
Entry for impairment loss
Impairment loss debit
Equipment credit
Calculate impairment loss as fair value - carrying value
Derecognized
Asset is disposed of
