F3 M4,M5,M6 Flashcards
(50 cards)
What is the formula for double declining method
applies a factor of 2/n to the cost total, with n representing the useful life of the asset. Each year the 2/n factor will be applied to the adjusted cost total after taking into account depreciation from the period. Salvage value is not accounted for in the calculation.
Intangiles are depreciated or amortized
Amortized
Types of depreciation are physical and functional T or F
T Physical you can touch; Functional like a patent
Useful life is calculated by what formula?
Total depreciation cost/total depreciationi
Define asset retirement
when a group or composite asset is sold or retired
What is composite or group depreciation?
It is the process of averaging economic lives of a number of units and depreciating the entire class of assets over a single life
What is the “sum” of the years depreciation formula
n(n+1)/2. It is an accelerated method (front load expense) of depreciation that provides higher depreciation in the early years and lower charges in the later years. Deprec expense = (cost-SALVAGE FALUE) x Remaining life of asset/sum of the years digits Ex: A five year use life would be 1+2+3+4+5=15 or; 5(5+1)/2=15; so, Yr 1 5/15 x (cost-50), Yr 2 4/15 x (cost-50), yr 3 3/15 x (cost-50) etc.
What is the units of production formula
Cost-salvage value/estimated units or hours; then rate per unit x number of units produced = depreciation
Know that a company has options are are permissible to that partial year depreciation (use the date placed in service) or other ways of depreciation. What are the permissible ways?
Depreciation is typically taken for only the portion of the year the asset is used. Ex: asset placed in service July 1 and the company is on calendar year then 6 months of depreciation. But companies can take a half year convention which means one-half years depreciation is taken n both the year of purchase and year of disposal. Company can take no depreciation a in the year of purchase and a full year in the year of disposal, company can take a full year depreciation in the year of purchase and none in the year of disposal.
Gain or loss on an asset is recognized when
When depreciation is taken individually NOT as a group
Depletion is used of natural resources T or F
T such as oil, gas, timber, minierals
What is the formula for depletion base?
Unit Depletion rate = Depletion base/estimated recoverable or removable units
What is the formula for depletion base?
Cost to purchase property + development cost+estimated restoration cost - residual value of land after resources are extracted
What is the formula to calculate depletion?
Total depletion = unit depletion rate x number of units extracted
Land Capitalized cost are all cost up to the digging of the land T or F
T; All cost in the purchasing of land and its development are capitalized EXCEPT FOR DIGGING OF THE LAND (EXCAVATION) which is part of building cost. Ex of land costs: legal fees, draining of swamps, filling in/leveling, site development, existing obligations assumed by the buyer like mortgages and back taxes, cost of old building demolition, LESS proceeds from sale of existing buildings, timber etc.
Land improvements are depreciable and include the following
Fences, water systems, sidewalks, paving, landscaping, lighting
What are the key words that you should know that mean you need to capitalize vs expense?
Additions, Improvements (betterments) and Replacements
Costs of Equipment includes all expenditures related directly to the acquisition or construction of the equipment such as
Invoice price - cash discounts + freight in (and insurance while in transit) + installation charges + sales and federal excise taxes
The interest on the amount borrowed and USED (actually spent) that money is subject to interest and is capitalized T or F
T Construction period interest should be capitalized based on weighted average of accumulated expenditure as part of the cost of producing fixed assets
What are examples of costs to capitalize when a fixed asset is constructed by a company?
Direct materials and labor, repairs and maintenance expense that ADD VALUE to the fixed asset, overhead, construction period interest
The amount of capitalized interes is the lower of
actual interest incurred or computed capitalized interest (avoidable) interest
T or F The installation date is when you start depreciation
T All equipment cost must be incurred before you begin the depreciation; basically the INSTALLATION date is the date when you start depreciation
In terms of a note payable present value is also known as the
Selling price
When you make an equipment/product purchased when is the liability recorded?
a liability is recorded NOT WHEN YOU MAKE A PURCHASE; but when you actually receive the machine
