The assets that a business owns help the business earn revenue. For example, a delivery truck (an asset) earns revenue for a delivery service business.
What assets do you have that help you carry on your daily activities? Do these items wear out? Will they have to be replaced?

What You’ll Learn
 How to identify plant assets.
 How to allocate the cost of a plant asset over its useful life.

Section 1 Plant Assets and Equipment (cont'd.)
Why It’s Important
Assets, such as buildings and machinery , are used for more than one accounting period, so the cost of these assets is spread over a number of years.
Key Terms
 current assets
 plant assets

 depreciation disposal value
 straight-line depreciation

Section 1 Plant Assets and Equipment (cont'd.)
Current and Plant Assets
Current Assets
Assets that are either consumed or converted to cash during the normal operating cycle of the business, usually one year.
Examples are:
 cash
 accounts receivable
(collect cash from charge customers within a short period of time)
 merchandise (sold within a short period of time)
Plant Assets
Long-lived assets that are used in the production or sale of other assets or services over several accounting periods .
Examples are:
 land
 buildings
 delivery equipment
 store equipment
 office equipment

Section 1 Plant Assets and Equipment (cont'd.)
Allocating the Cost of Plant
Asset
 Allocating the cost of a plant asset over that asset’s useful life is called depreciation .
 All plant assets are depreciated, except for land.

Section 1 Plant Assets and Equipment (cont'd.)
Estimating Depreciation of a
Plant Asset
There are four factors used to calculate depreciation:
 the cost of the plant asset
 the estimated useful life of the asset
 the estimated disposal value of the asset
 the depreciation method used

Section 1 Plant Assets and Equipment (cont'd.)
Plant Asset Cost
Plant Asset Cost is the price paid for the asset plus any sales taxes, delivery charges, and installation charges.

Section 1 Plant Assets and Equipment (cont'd.)
Estimated Useful Life of a
Plant Asset
The estimated useful life of a plant asset is the number of years the asset is expected to be used before it wears out, becomes outdated, or is no longer needed by the business.

Section 1 Plant Assets and Equipment (cont'd.)
Estimated Disposal Value of a Plant Asset
The estimated disposal value of a plant asset is the estimated value of a plant asset at its replacement time is called disposal value.

Section 1 Plant Assets and Equipment (cont'd.)
Depreciation Method
 Straight-line depreciation equally distributes the depreciation expense over an asset’s estimated useful life.
 Units-of-production method estimates useful life measured in units of use rather than units of time.
 Accelerated depreciation methods are based on the theory that an asset loses more value in the early years of its useful life than in the later years.

What You’ll Learn
 How to calculate the annual depreciation of a plant asset.
 How to calculate depreciation for a partial year.
 How to determine the book value of a plant asset.

Section 2 Calculating Depreciation (cont'd.)
Why It’s Important
Businesses must maintain accurate records of each plant asset and its related depreciation.
Key Terms
 accumulated depreciation
 book value

Section 2 Calculating Depreciation (cont'd.)
Calculating Depreciation
To calculate depreciation, you need to know the cost of the asset, the estimated useful life, and the estimated disposal value.
Original
Cost
$16,500 –
Estimated Amount
Disposal Value to be Depreciated
$1,500 = $15,000

Section 2 Calculating Depreciation (cont'd.)
Calculating Depreciation
(cont'd.)
Next calculate the annual depreciation expense using the straight-line method:
Amount to be

Depreciated
Estimated
Useful = Depreciation
Life
Annual
Expense
$15,000

5 = $3,000

Section 2 Calculating Depreciation (cont'd.)
Plant Asset Records
Businesses maintain records for each plant asset and the depreciation taken for that asset .

What You’ll Learn
 How to record adjusting entries in the general journal for depreciation.
 How to record depreciation adjustments on a work sheet.
 How to report Depreciation Expense and Accumulated Depreciation on financial statements.

Section 3 Accounting for Depreciation Expense at the End of a Year (cont'd.)
Why It’s Important
Adjustments are made to record depreciation . This allows businesses to present up-to-date financial information about plant assets.

Section 3 Accounting for Depreciation Expense at the End of a Year (cont'd.)
Adjusting for Depreciation
Expense
After depreciation on plant assets is calculated, adjustments are made to record depreciation for the period.

Section 3 Accounting for Depreciation Expense at the End of a Year (cont'd.)
Depreciation Expense
 Depreciation Expense is an expense account.
 Depreciation Expense is reported on the income statement .
 At the end of the year, Depreciation
Expense is closed to Income
Summary .

Section 3 Accounting for Depreciation Expense at the End of a Year (cont'd.)
Accumulated Depreciation
 The balance of Accumulated
Depreciation represents the total amount of depreciation expensed since the asset was purchased.
Accumulated Depreciation
Debit
–
Decrease Side
Credit
+
Increase Side
Normal Balance Side
 Accumulated Depreciation is classified as a contra asset account.

Section 3 Accounting for Depreciation Expense at the End of a Year (cont'd.)
Preparing the Adjustment for
Depreciation Expense
(cont'd.)
Adjustment
(cont'd.)
On December 31, the accounting clerk for On Your Mark records the depreciation for the delivery truck. The annual depreciation expense for the delivery truck is
$3,000.
T ACCOUNTS 6.
Depr. Expense—
Delivery Equipment
Debit
+
3,000
Credit
–
Accum. Depr.
Delivery Equipment
Debit
–
Credit
+
3,000

Section 3 Accounting for Depreciation Expense at the End of a Year (cont'd.)
Reporting Depreciation Expense and Accumulated Depreciation on Financial Statements

Section 3 Accounting for Depreciation Expense at the End of a Year (cont'd.)
Reporting Depreciation Expense and Accumulated Depreciation on Financial Statements
(cont'd.)