AFA 717 Study Guide - Summer 2018, Comprehensive Midterm Notes - Depreciation, Amortization, Intangible Asset

208 views29 pages
12 Oct 2018
Department
Course
Professor
AFA 717
MIDTERM EXAM
STUDY GUIDE
Fall 2018
Unlock document

This preview shows pages 1-3 of the document.
Unlock all 29 pages and 3 million more documents.

Already have an account? Log in
Unlock document

This preview shows pages 1-3 of the document.
Unlock all 29 pages and 3 million more documents.

Already have an account? Log in
Depreciation or amortization:
Starts when asset is in its intended condition, location and is available for use.
With straight-line and accelerated methods, depreciation continues when the asset is
idle.
Stops when asset derecognized (sold) or classified as held-for-sale.
Asset is not depreciated below its residual value.
Major Spare Parts are a separate component and depreciated separately.
Depreciation begins when put into service.
Standby Equipment depreciated when ready for use.
Depreciation linked to the equipment it is acting as back up for.
Assumes asset provides equivalent service each year of its life
Relates depreciation/amortization directly to the passage of time
Results in a constant amount recognized per time period
The straight-line method is:
logically appealing;
rational and systematic; and
the most popular method in use
easy to use
Use either: service-hours method or productive output method (also called the units-of-
production method)
No depreciation recorded for idle assets
The method is rational and systematic. It logically matches expenses to revenue and is only
used for tangible assets
Drawbacks:
If obsolescence is a factor, these methods will not portray this reality.
Methods can produce different results, depending on the ratio of machine-hours to
units produced.
Difficult to accurately estimate the total projected activity.
Recognize greater amounts of depreciation early in the useful life and lesser amounts
later
find more resources at oneclass.com
find more resources at oneclass.com
Unlock document

This preview shows pages 1-3 of the document.
Unlock all 29 pages and 3 million more documents.

Already have an account? Log in
assumes newer assets produce more benefits per period because they are more
productive and require less maintenance and repair.
Declining balance method is different in two ways from other methods:
Residual value is not subtracted when computing depreciation; Depreciation
stops when the net book value equals residual value
Depreciation rate is applied to a declining net balance.
Rates are determined based on:
CCA rates; industry norms; equal to 2X straight-line rates
Component depreciation accounting requires specific information be tracked:
Identify significant major parts or components on acquisition of an asset
For each component track:
Acquisition cost;
Residual value;
Useful life; and
Depreciation method and period
find more resources at oneclass.com
find more resources at oneclass.com
Unlock document

This preview shows pages 1-3 of the document.
Unlock all 29 pages and 3 million more documents.

Already have an account? Log in

Document Summary

Starts when asset is in its intended condition, location and is available for use: with straight-line and accelerated methods, depreciation continues when the asset is idle. Stops when asset derecognized (sold) or classified as held-for-sale: asset is not depreciated below its residual value, major spare parts are a separate component and depreciated separately. Standby equipment depreciated when ready for use. Depreciation linked to the equipment it is acting as back up for. Assumes asset provides equivalent service each year of its life. Relates depreciation/amortization directly to the passage of time. Results in a constant amount recognized per time period. The straight-line method is: logically appealing; rational and systematic; and the most popular method in use easy to use. Use either: service-hours method or productive output method (also called the units-of- production method) It logically matches expenses to revenue and is only used for tangible assets.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers