supplement i
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Supplement I
Fixed asset and Depreciation Methods
固定资产和折旧方法
Classification of Assets
Current Assets( 流动资产 ) are assets which can be converted into Cash or consumed within one year or the
normal Operating cycle of the business
Current Assets( 流动资产 ) are assets which can be converted into Cash or consumed within one year or the
normal Operating cycle of the business
Fixed Assets ( 固定资产 )or long-term assets ,refer to those relatively long-lived assets which are held by a
business for use in its operation
Fixed Assets ( 固定资产 )or long-term assets ,refer to those relatively long-lived assets which are held by a
business for use in its operation
L an d , b u ild in g s ,eq u ip m en t,
fu rn itu re , fixtu res .
L on g -te rmasse ts h avin g
p h ys ica l su b s tan ce .
Tangible PlantAssets
P aten ts , cop yrig h ts ,trad em arks ,
fran ch ises , g ood w ill.
N on cu rren t asse tsw ith n o p h ys ica l
su b s tan ce .
IntangibleAssets
O il reserves ,t im b er, o th er
m in era ls .
S ites acq u ired fo rextrac tin g va lu ab le
resou rces .
NaturalResources
Major Categories of Fixed Assets
Major Categories of Fixed Assets
Depreciation Method of Plant Asset
Straight-line method
直线法Sum- of-the- years’-digits method
年数总和法Double-declining-balance Method
双倍余额递减法
Book Value帐面净值 Cost - Accumulated Depreciation Accumulated Depreciation累计折旧 Represents the portion of an asset’s cost that has already been allocated
to expense.
Book value of last year =salvage value
Book Value帐面净值 Cost - Accumulated Depreciation Accumulated Depreciation累计折旧 Represents the portion of an asset’s cost that has already been allocated
to expense.
Book value of last year =salvage value
DepreciationDepreciation
Sum-of-the-Years’-Digits Method
Sum-of-the-Years’-Digits Method
Depreciation in the early years of an asset’s estimated useful life is higher than in later years.
Depreciation in the early years of an asset’s estimated useful life is higher than in later years.
the years in reverse order The sum of number of years
the years in reverse order The sum of number of years
Sum-of-the-Year-DigitsExample
Sum-of-the-Year-DigitsExample
On January 1, 2005, Bass Co. buys a new boat. Bass Co. pays $24,000 for the boat. The boat has an
estimated residual value of $3,000 and an estimated useful life of 5 years.
Compute depreciation for 2005 using the Sum-of-Years-Digits method.
On January 1, 2005, Bass Co. buys a new boat. Bass Co. pays $24,000 for the boat. The boat has an
estimated residual value of $3,000 and an estimated useful life of 5 years.
Compute depreciation for 2005 using the Sum-of-Years-Digits method.
On January 1, 2005, Bass Co. buys a new boat. Bass Co. pays $24,000 for the boat. The boat has an
estimated residual value of $3,000 and an estimated useful life of 5 years.
Compute depreciation for 2005 using the Sum-of-the-Year-Digits method.
On January 1, 2005, Bass Co. buys a new boat. Bass Co. pays $24,000 for the boat. The boat has an
estimated residual value of $3,000 and an estimated useful life of 5 years.
Compute depreciation for 2005 using the Sum-of-the-Year-Digits method.
Sum-of-the-Year-DigitsExample
Sum-of-the-Year-DigitsExample
2005 Dep expense=( Cost - Residual Value )*Dep Rate of 2005=(24000-3000)*5/15=7000
Sum-of-the-Year-DigitsExample
Sum-of-the-Year-DigitsExample
Compute depreciation for the rest of the boat’s estimated useful life.
Compute depreciation for the rest of the boat’s estimated useful life.
Sum-of-the-Years-Digits BalanceGraph of Depreciation Expense
Sum-of-the-Years-Digits BalanceGraph of Depreciation Expense
Accelerated Method
• Example on textbook ,p78
Depreciation in the early years of an asset’s estimated useful life is higher than in later years.
Depreciation in the early years of an asset’s estimated useful life is higher than in later years.
The double-declining balance accelerated depreciation rate is 200% of the straight-
line depreciation rate of 1/Useful Life.
The double-declining balance accelerated depreciation rate is 200% of the straight-
line depreciation rate of 1/Useful Life.
Double-Declining BalanceExample
Double-Declining BalanceExample
Depreciation in the early years of an asset’s estimated useful life is higher than in later years.
Depreciation in the early years of an asset’s estimated useful life is higher than in later years.
The book value at the beginning of the year The book value at the beginning of the year
Double-Declining BalanceExample
Double-Declining BalanceExample
Double-Declining BalanceExample
Double-Declining BalanceExample
On January 1, 2005, Bass Co. buys a new boat. Bass Co. pays $24,000 for the boat. The boat has an
estimated residual value of $3,000 and an estimated useful life of 5 years.
Compute depreciation for 2005 using the double-declining balance method.
On January 1, 2005, Bass Co. buys a new boat. Bass Co. pays $24,000 for the boat. The boat has an
estimated residual value of $3,000 and an estimated useful life of 5 years.
Compute depreciation for 2005 using the double-declining balance method.
Double-Declining BalanceExample
Double-Declining BalanceExample
On January 1, 2005, Bass Co. buys a new boat. Bass Co. pays $24,000 for the boat. The boat has an
estimated residual value of $3,000 and an estimated useful life of 5 years.
Compute depreciation for 2005 using the double-declining balance method.
On January 1, 2005, Bass Co. buys a new boat. Bass Co. pays $24,000 for the boat. The boat has an
estimated residual value of $3,000 and an estimated useful life of 5 years.
Compute depreciation for 2005 using the double-declining balance method.
Double-Declining BalanceExample
Double-Declining BalanceExample
Compute depreciation for the rest of the boat’s estimated useful life.
Compute depreciation for the rest of the boat’s estimated useful life.
Double-Declining BalanceExample
Double-Declining BalanceExample
Compute depreciation for the rest of the boat’s estimated useful life.
Compute depreciation for the rest of the boat’s estimated useful life.
Double-Declining BalanceExample
Double-Declining BalanceExample
Compute depreciation for the rest of the boat’s estimated useful life.
Compute depreciation for the rest of the boat’s estimated useful life.
Double-Declining BalanceExample
Double-Declining BalanceExample
Total depreciation over the estimated useful life of an asset is the same using either the straight-line method or
the declining-balance method.
Total depreciation over the estimated useful life of an asset is the same using either the straight-line method or
the declining-balance method.
Double-Declining BalanceGraph of Depreciation ExpenseDouble-Declining Balance
Graph of Depreciation Expense
Accelerated Method
• Example on textbook,p79
Double-Declining BalanceExample
Double-Declining BalanceExample
Compute depreciation for the equipment. Compute depreciation for the equipment.
Double-Declining BalanceExample
Double-Declining BalanceExample
Compute depreciation for the equipment. Compute depreciation for the equipment.
Exercise
• Jon Seceda furnace Corp. purchased machinery for $ 50,000 at the beginning of the year 1.It is estimated that it will have a useful life of 5 years , residual value of $5000.compute the depreciation under the each of the following method (round to two decimal places)
• Sum-of-years’-digits• Double-declining balance
Sum-of-the-Year-DigitsExample
Sum-of-the-Year-DigitsExample
Double-Declining BalanceExample
Double-Declining BalanceExample
Exercise
• Jon SECEDA furnace corp. purchased machinery for $315,000 on April 1,2004. It is estimated that it will have a useful life of 10 years , scrap value of $ 15000
• From the information given , compute the depreciation charge in 2004 under each of the following method( round to three decimal places)
• straight-line • sum-of-years’-digits• Double-decline balance
Exercise
• [(315000-15000) ×1/10] ×9/12=22500
• [(315000-15000)×10/55]×9/12=40909.09
• [(315000×2/10] ×9/12=47250
Book Value帐面净值 Market Value/ fair Value
市场价值 / 公允价值 the price which the assets are
exchanged in the market
Book Value =Market Value
Book Value帐面净值 Market Value/ fair Value
市场价值 / 公允价值 the price which the assets are
exchanged in the market
Book Value =Market Value
DepreciationDepreciation
assignment
Problems 2 ( p 81)
Problems 1 ( p 80)
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