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What is an asset's depreciable base?
: salvage value
What are the 4 main depreciation methods?
Activity method (units of use or production)
Declining balance method
SOY digits and DD balance are accelerated methods but OVERALL depreciation is always the same regardless of the method used
Estimated total service hours
Multiply by hours used
Depreciation as a function of time
Cost less salvage
Estimated 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 =
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
Depreciation Impairments Depletion
Depreciation, Impairments and Depletion