Flashcards in F4 Notecards- Deck #4 Deck (21)
What are depreciable assets?
Long-lived assets not held for sale
What is physical depreciation?
What is functional depreciation?
Depreciation base =
Cost - salvage value
Composite or Group Depreciation
Composite = dissimilar assets
Group = similar assets
Averages the economic lives of a number of units and depreciates the entire class over a single life
Simplifies record keeping
Advantage of Component Depreciation
-Each component gets depreciated over its useful life
When one asset in the group is retired/sold,
NO gain/loss recognized; just plug to AD
Straight-line Depreciation Method
(Cost - salvage life)/ estimated useful life
Sum-of-the-Years'-Digits Depreciation Method
Accelerated depreciation method that gives higher depreciation expense in the early years
(Cost - salvage) X (Remaining life of asset/Sum of the years digits)
simple = N(N+1) / 2
Declining Balance Depreciation Method
2 x (1/N) x (Cost- AD)
*Asset can't be depreciated below the salvage value
Units of Production Depreciation Method
Step 1: (Cost - salvage)/estimated units or hours = rate per unit or hour
Step 2: Rate per unit X #of units produced = depreciation expense
Depletion applies to
Depletion: Purchase cost includes:
Any costs to purchase and then prepare the land for removal/harvest
Depletion Base =
Cost - residual value (same as salvage value)
Cost Depletion Method
Base / recoverable units = rate
Unit Depletion Rate Calculation
Step 1: Depletion Base = Cost of land + development costs + Restoration - Residual Value
Step 2: Unit Depletion = depletion base / estimated recoverable units
Step 3: Depletion for the Year = unit depletion X units extracted
Step 4: Depletion to Include in COGS = unit depletion X units sold
When is the units-of-production depreciation method most appropriate?
An asset's service potential declines with use
GAAP (fixed assets): If the sum of undiscounted expected future cash flows is less than the carrying amount, what gets recognized?
An impairment loss
IFRS (fixed assets): Impairment loss =
Fair value less costs to sell - carrying value
GAAP vs IFRS: reversal of impairment losses?
IFRS allows; GAAP does not