PLANT ASSETS
Study Objective
-Describe the practice of cost of account to plant assets.
-The explanation about the depreciation opinion.
-The computing the depreciation period with different methods.
-Describe the rule of changing depreciation period.
-The difference between income and expense and explain about the
transaction for the expense.
-How to compute for asset in stop using of selling.
-Compute the deduction of period natural resource.
-The contrast between the intangible assets and plant assets.
-How are plant assets, natural resource and intangible assets reported
and analyzed.
Fixed Assets
Fixed Assets are fixed resource that they are used to operate the
business and are not sold to the customer.
Fixed Assets are divided in to four kinds :
- Land
- Land improvement
- Building
- Equipment
Fixed assets are important for the business because :
- Store assets in the condition of a good operation.
- Replace the assets that over the deadline.
- Improve the productivity of resource that we need.
Example of Fixed assets
On January 1 , 2009 Panha Co., Ltd purchased equipment for
$13,000 in cash. The equipment has an estimated residual
value of $1000.
I. Formula for straight-line:
Straight-line depreciation is the method that allocates the cost
of an asset in equal periodic amounts over its useful life.
Cost - Salvage Value = Depreciation cost
$13,00- $1,000
Depreciation cost
Useful life (in year)
= $12,000
Annual Depreciation Expense
Straight line depreciation schedule:
IBM Co., Ltd
Computation
Depreciation Depreciation
Year Cost
Rate
2008 12,000
20%
2009 12,000
20%
Ending of year
Annual
Account
Depreciat Depreciatio
2,400
2,400
2,400
4,800
Bank
Value
10,600
8,200
2010 12,000
2011 12,000
20%
20%
2,400
2,400
7,200
9,600
5,800
3,400
2012 12,000
20%
2,400
12,200
1,000
II. Units of Activity
Formula for units of activity method:
Units of activity depreciation is a method to allocated the cost
of an asset over its useful life based on the relation of its
periodic output its total estimated out put.
Depreciation cost
Total units of activity
Depreciation cost per units
Depreciation cost per units × Units of activity during the year
= Annual depreciation expense
Units of activity depreciation schedule:
IBM Co., Ltd
Computation
Year Units of
activity
Ending of year
Annual
depreciat.
2008 15,000
2009 30,000
Depreciation Annual Dep.
Per units
expense
0.12
1,800
0.12
3,600
1,800
5,400
Book
Value
11,200
7,600
2010 20,000
2011 20,000
0.12
0.12
2,400
2,400
7,800
10,200
5,200
2,800
2012 15,000
0.12
1,800
1,200
1,000
III. Declining balance depreciation
Declining balance depreciation is the method that allocates
the
of an asset over its useful life based on a multiple of
the straight line rate of the two times.
Formula for declining balance method:
Book Value at beginning of year × Declining Balance rate
= Annual depreciation Expense
Declining balance depreciation schedule:
IBM Co., Ltd
Computation
Ending of year
Year Book va.
Beg.year
2008 13,000
2009 7,800
Depreciation Annual Dep.
Balance rate expense
40%
5,200
40%
3,120
Annual dep Book
expense
Value
5,200
7,800
8,320
4,680
2010 4,680
2011 2,808
40%
40%
1,872
1,123
10,192
11,315
2,808
1,685
2012 1,685
40%
685
12,000
1,000
Annual straight-line depreciation
IV- Comparing depreciation methods:
12,000
10,000
8,000
6,000
4,000
2,000
1
2
3
4
Life in year
5
Annual production depreciation
IV- Comparing depreciation methods:
35,000
30,000
25,000
20,000
15,000
10,000
0
1
2
3
4
Life in year
5
Annual declining balance depreciation
IV- Comparing depreciation methods:
14,000
12,000
10,000
8,000
6,000
4,000
2,000
1
2
3
4
Life in year
5
V- Change in Estimates for Depreciation
On January 1, 2009, equipment was purchased that cost $ 60,000
Has a useful life of 10 year and no salvage value. During 2012,
the useful life was revised to 8 year total (5 year remaining).
Asset Cost
$60,000
Accumulated depreciation 12,31,2010
($60,000
×
3 year)
$18,000
Remaining book value
$42,000
Divide by remain life
5
Revised annual depreciation
8,400
Dec 31 Depreciation expense
$ 8,400
Accumulated depreciation equipment
$8,400
Natural Resources:
Cost determination and Depletion:
Total cost – Salvage Value
= Depletion
cost per unit
Total estimated Units
Depletion cost per unit × Number of Units Extracted and sold
= Annual Depletion Expense
Robert Co., Ltd acquired a tract of land containing ore deposits.
Total costs of acquisition and development were $100,000 and
Robert estimates the land contained 40,000 tons of ore. During the
first year of operations Robert extract and sold 13,000 tons of ore.
$1,000,000 – $0
= $125
per ton
40,000 tons
Depletion Expense = $125 per ton × 13,000 = $325,000