Chapter 11

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Author:
kchiccarine
ID:
53266
Filename:
Chapter 11
Updated:
2010-12-08 10:46:27
Tags:
Depreciation Impairments Depletion
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Description:
Depreciation, Impairments and Depletion
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  1. What is an asset's depreciable base?
    • Original cost
    • less: salvage value
    • Depreciation base
  2. What are the 4 main depreciation methods?
    • Activity method (units of use or production)
    • Straight-line
    • 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
  3. Activity Method
    • Cost-salvage
    • Estimated total service hours

    =Depreciation/hour

    Multiply by hours used
  4. Straight-line Depreciation
    Depreciation as a function of time

    • Cost less salvage
    • Estimated service life

    =Depreciation per year
  5. Sum of years digits
    Depreciation fraction (Depreciation base)

    = Depreciation expense
  6. Formula for determining the denominator in sum of years digits
    • n (n+1)
    • 2

    =denominator
  7. Double-declining balance method
    Does not use depreciable base--use book value

    Book value (rate [double that of straight-line])=

    depreciation expense
  8. Impairment
    When a company writes off the carrying amount of an asset that is not recoverable
  9. Recoverability test
    • 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
  10. How is an asset adjusted due to an impairment?
    Carrying amount - FMV = Impairment loss
  11. What is the journal entry to record loss on impairment?
    • Loss on impairment xxx
    • Accumulated Depreciation xxx
  12. Depletion
    Similar to units of activity depreciation

    • Total cost - salvage value
    • Total estimated units available

    = Depletion cost per unit
  13. 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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