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What is an asset's depreciable base?
- Original cost
- less: salvage value
- Depreciation base
What are the 4 main depreciation methods?
- Activity method (units of use or production)
- Sum-of-year's digits
- Declining balance method
SOY digits and DD balance are accelerated methods but OVERALL depreciation is always the same regardless of the method used
- Cost-salvageEstimated total service hours
Multiply by hours used
Depreciation as a function of time
- Cost less salvageEstimated service life
=Depreciation per year
Sum of years digits
Depreciation fraction (Depreciation base)
= Depreciation expense
Formula for determining the denominator in sum of years digits
Double-declining balance method
Does not use depreciable base--use book value
Book value (rate [double that of straight-line])=
When a company writes off the carrying amount of an asset that is not recoverable
- 1- Determine future cash flows of the asset
- 2- Compare it to the carrying amt of the asset
- 3-If future cash flows < carrying amt = Impairment
- If future cash flows > carrying amt =
- No Impairment
How is an asset adjusted due to an impairment?
Carrying amount - FMV = Impairment loss
What is the journal entry to record loss on impairment?
- Loss on impairment xxx
- Accumulated Depreciation xxx
Similar to units of activity depreciation
- Total cost - salvage value Total estimated units available
= Depletion cost per unit
How is impairment different when the asset will be disposed?
Each period the assets are reported at LCM or net realizable value.
Impairment loss= carrying amt less FMV + cost of disposal
No depreciation taken
restoration of impairment loss permitted
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