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Flashcards in Chapter 9 Deck (30):
1

Depreciation

is the systematic allocation of the cost of an operational asset over its useful life

2

What does depreciation not mean?

the accumulation of cash for the replacement of an asset
-it does not mean wear and tear and obsolescence

3

What do we depreciate?

-building
-equipment
-automobiles
-furniture
-land improvements
-leasehold improvements

4

What do we never depreciate?

LAND!!!!!

5


Do we record appreciation?

no!!!!!!

6

What is included in cost?

- acquisition cost: everything to get the asset ready to use except interest


-remove nay purchase discount


-installation fees
-test runs
-transportation



7

Why do we depreciate?

expense recognition concept(matching)
-expense of using the the asset is recorded in the period of revenue

8

What is razing added to?

-added to the cost of land

9

What is the adjusted journal entry time period for this section?

monthly and quarterly

10

What is the adjusted entry?

Dr: depreciation expense

Cr:Accumulated Depreciation

11

What is depreciation expense?

represents an estimate of how much of the estimate was used up this period

12

What type of asset is accumulated depreciation?

Discuss?

contra asset

represents how much has been used up since it was acquired

13

What is the formula for book value?

cost minus accumulated depreciation

14

Three methods of depreciation

-straight line
-double declining balance
-units of production

15

What is the formula for straight line?

(cost-salvage)/useful life= depreciation expense

16

Double Declining Balance

-results in higher depreciation in the early years
-used mostly for tax purposes

17

units of activity method

-useful life is expressed in terms of the total units of production or the use expected from the asset

-usually suited to factory machinery

-measure production in terms of units of output or machine hours used in operating machinery

examples: delivery equipment(miles driven)
airplanes(hours in use)


-not suitable for building or furniture

18

The Fees for Land

1) cash price
2) title and attorney's fees
3) real estate brokers' commission
4)accrued property taxes and other liens assumed by the purchaser

19

Discuss the what ultimately true about the depreciation methods?

-total depreciation expense is the same for all of them

20

Can you use different methods for different purposes?

-yes

21

Discuss deferred tax account

-creating a difference on the tax return an income statement

22

Revenue Expenditures(aka)

-expenses
-ordinary repairs and maintenance

23

Capital expenditures(aka)

-assets

-seldom occur
-large amounts of $$$$$$
-extended life
-greater efficiency

24

Depreciation is important to what time periods?

-future time periods

25

Depletion

systematic allocation of the cost of a natural resource to future periods in which asses contribute services

dr:depletion expense
cr:accumulated depletion or asset

26

Amortization

systematic allocation of the cost of an intangible asset to future periods in which the assets contribute services

dr:amortization expense
cr: accumulated amortization or asset

27

Points on Intagible Assets

-have no physical substance
-provide future benefits
-benefits are derived from legal rights
-must acquired so they have a cost
-have a limited life

28

Examples of Intangible Assets

Examples of Intangible Assets

29

Research and Development

-costs are expensed in the period incurred
-patents have to be purchased or defended to be an asset

-those developed in-house are treated as expenses

30

Others names for salvage value

-residual value
-salvage value