BSAD 221
Introductory Financial
Accounting
Donna Gunn, CA
Depreciation for Partial
Years
Suppose a calendar-year business purchases
a building on April 1 for $500,000 with an
estimated life of 20 years and an estimated
residual value of $80,000.
What is the current year’s depreciation
using the straight-line method?
Depreciation for Partial Years
Full-year depreciation:
($500,000 – $80,000) ÷ 20 = $21,000
Partial-year depreciation:
$21,000 × 9/12 = $15,750
Changing the Useful Life
of a Depreciable Asset
Assume an asset cost of $40,000, an eightyear useful life with no residual value, and
the straight-line method.
$40,000 ÷ 8 = $5,000 depreciation per year
What is the carrying amount after two years?
NBV = $40,000 – $10,000 = $30,000
Changing the Useful Life
of a Depreciable Asset
Management believes the asset will remain
useful for an additional ten years.
Current NBV / Estimated Remaining Useful Life
$30,000 ÷ 10 = $3,000
(new depreciation per year)
Disposal of Property, Plant,
and Equipment
Voluntary disposals:
• Sale
• Trade-in
• Retirement
Involuntary disposals:
• Fire
• Accident
Disposal of Property, Plant,
and Equipment
1. Update amortization to the date of disposal
2. Record cash received (debit)
3. Write off accumulated amortization (debit)
4. Write off the asset cost (credit)
5. Record a gain (credit) or loss (debit)
Disposal of Property, Plant,
and Equipment
If Cash > BV, record a gain (credit).
If Cash < BV, record a loss (debit).
If Cash = BV, no gain or loss.
Disposal of Property, Plant,
and Equipment
At the end of 2011 WestJet Airlines
• sold an aircraft for $1,600,000 cash
• original cost of the aircraft was $2,600,000
• accumulated amortization (after updating
amortization) was $595,000
Prepare the journal entry to record the disposal
Disposal of Property, Plant,
and Equipment
Cash
Acc. Amort – Aircraft
Loss on sale
Aircraft
1,600,000
595,000
405,000
2,600,000
Recognize the cash received and the removal of the
asset accounts.
The difference is the gain or loss.
Asset Impairment
Impairment is the loss of a significant portion of the
utility of an asset through . . .
• Casualty.
• Obsolescence.
• Lack of demand for the asset’s services.
Asset Impairment
A loss should be recognized when an
asset suffers a permanent impairment.
impairment loss = net book value – fair value
Revaluation Model
Under the revaluation model, the asset is
recorded at cost when purchased but then
measured at its fair value less any
accumulated depreciation less any
accumulated losses.
Fair Value
the price at which the asset could be sold
Intangible Assets
Record at current
cash equivalent cost,
including purchase
price, legal fees, and
filing fees.
• Goodwill
• Trademarks
• Patents
• Copyrights
• Franchises
• Technology
• Licencing Rights
• Leaseholds
Intangible Assets
Definite Life
 Amortize over shorter of economic life or legal life, subject
to rules specified by GAAP.
 Use straight-line method.
Indefinite Life

Not amortized.

Tested at least annually for possible impairment, and book
value is reduced to fair value if impaired.
Intangible Assets – Goodwill
Arpec Company paid $2,000,000 to purchase
all of Utek Company’s assets and assumed
liabilities of $400,000.
The acquired assets were appraised at a fair
value of $1,800,000.
Intangible Assets - Goodwill
Purchase Price
$2,000,000
FMV of Net Assets*
1,400,000
Goodwill
$600,000
*FMV of Net Assets = FMV Assets – Debt Assumed
=$1,800,000 - $400,000
Intangible Assets –
Trademarks
A symbol, design, or logo associated
with a business.
Internally developed
trademarks have no
recorded asset cost.
Purchased trademarks
are recorded at cost.
Intangible Assets – Patents
Exclusive right granted by federal
government to sell or manufacture an
invention.
Cost = purchase price + legal costs
Amortize = shorter of useful life or 20 years
Intangible Assets –
Copyrights
Exclusive right granted by the federal
government to protect artistic or intellectual
properties.
Legal life is life of creator plus 50 years
Amortize cost over the period benefited.
Intangible Assets –
Franchises
Legally protected right to sell products or provide
services purchased by franchisee from franchisor.
Purchase price of the franchise is recorded as
an intangible asset that is amortized.
Intangible Assets –
Licencing Rights
Limited permissions to use a
product or service according to
specific terms and conditions.
You may be using computer
software that is made
available to you through a
campus licencing agreement.
Research & Development
Expenses
If an intangible asset is developed internally,
the cost of development normally is recorded
as research and development expense.
Under specific circumstances, development
costs can be deferred to future accounting
periods, recorded as assets, and then
amortized over time, if the company can
meet specific criteria for deferral.