Transcript Chapter 18, Section 2 Notes

Accounting for Plant Assets
and Depreciation
Chapter 18, Section 2
Calculating Depreciation Expense
Depreciating Plant Assets
• Plant assets wear out or become
technologically obsolete.
• CONCEPT: Matching Expenses with
Revenue
• Depreciation Expense
Calculating Depreciation Expense
• 3 factors affect depreciation expense:
▫ Original Cost
▫ Estimated Salvage Value
▫ Estimated Useful Life
 Physical depreciation
 Functional depreciation
Straight-Line Depreciation
Equal amount of depreciation
expense each year.
Est. Total
Depreciation
=
Annual Depr.
Expense
=
Original
Cost
– Est. Salvage
Value
Est. Total
÷
Depreciation
Years of
Useful Life
Straight-line Depreciation
Calculating Annual Depreciation Expense
1. Subtract the asset’s estimated salvage value from the original cost.
2. Divide the estimated total depreciation expense by the years of
estimated useful life.
Original
Cost
–
Estimated
Salvage Value
=
$3,250.00
–
$250.00
=
Estimated Total
Depreciation
Expense
$3,000.00
÷ Years of Estimated =
Useful Life
÷
5
=
Estimated Total
Depreciation
Expense
$3,000.00 1
Annual
Depreciation
Expense
$600.00
2
Calculating Depreciation Expense for
Part of a Year
Calculating Partial Year’s Depreciation Expense
1. Divide the annual depreciation expense by 12.
2. Multiply the monthly depreciation expense by the number of
months the plant asset is used in a year.
Annual
Depreciation
Expense
÷
Months in
a Year
=
Monthly
Depreciation
Expense
$600.00
÷
12
=
$50.00
Monthly
Depreciation
Expense
$50.00
× Number of Months =
Asset Is Used
×
5
=
1
Partial Year’s
Depreciation
Expense
$250.00
2
Calculating Accumulated Depreciation
2012 Accumulated +
Depreciation
$1,200.00
+
2013
Depreciation
Expense
$600.00
= 2013 Accumulated
Depreciation
=
$1,800.00
Calculating Book Value
Original
Cost
–
Accumulated
Depreciation
=
Ending
Book Value
$3,250.00
–
$1,800.00
=
$1,450.00
Beginning
Book Value
–
Annual
Depreciation
=
Ending
Book Value
$2,050.00
–
$600.00
=
$1,450.00
PROBLEMS
Complete the following on www.aplia.com
• Work Together 18-2 (text pg.541)
• On Your Own 18-2 (text pg. 541)
• Application Problem 18-2 (text pg. 556)