Textbook Notes (362,772)
Canada (158,052)
MGAC01H3 (34)
Daga (20)
Chapter 11

Chapter 11 Notes

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University of Toronto Scarborough
Financial Accounting

Chapter 11 Depreciation Impairment and Disposition NotesDepreciationA Method of Allocationdepreciationor amortization as it is also calledis a means of cost allocation it is the process of allocating the depreciable amount of a PPE asset to expense in a systematic manner to those periods expected to benefit from its usethe depreciable amount is the assets cost less its residual amount although there could be a substitute value used instead of cost such as that used when the revaluation model is appliedFactors Considered in the Depreciation ProcessAsset Componentsthe following principles guide the componentization decisionoIdentify each part of a PPE asset whose cost is a significant portion of the total asset cost as a separate componentoGroup together significant components with similar useful lives and patterns of providing economic benefitsoAdd together the costs of the remaining parts of the asset none of which is individually significant These may be depreciated as a single component taking into account the nature of the different partsoGroup together individual minor assets to depreciate as one component based on the similarity of their useful life and pattern of consumptionImpairmentif an investment property is measured at fair value and its usefulness to the company is significantly reduced ie the asset becomes impaired remeasurement of asset to fair value automatically recognizes this reduction and associated loss is recognized in incomeassets measured under the cost or revaluation model however are not automatically adjusted to fair value instead they are reported at cost fair value at the most recent revaluation date less accumulated depreciationthe first step in accounting for impairments is for management to be alert to events and circumstances that might indicate that a longlived asset is impaired ie that its carrying amount is higher than its future economic benefits to the companyIndicators of ImpairmentExternal IndicatorsInternal IndicatorsThere has been a significant reduction in the assets market valueThere is evidence of obsolescence or physical damage of an assetA significant change in the technological market economic or Significant changes with adverse effects have taken place or are legal environment has affected or may adversely affect the entityexpected to take place in how the asset is usedMarket rates of return have increased with a negative effect on the Internal reports about the asset indicate its performance is or will assets value and recoverable amountbe worse than expectedThe book value of the entitys net assets is more than th
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