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Chapter 9

Financial Accounting in a Global Context CHAPTER 9 Notes -- 4.0ed the final exam

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ACCT 1202
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Chapter 9 • Depreciation o Cost allocation not valuation o Methods  Straight-line  Units-of-productions  Declining balance o Three variables for calculating  Acquisition cost  Estimated useful life (units of time; months, years, etc.) or (units of production)  Estimated residual value (salvage, scrap, etc.) • Depreciable basis: cost- residual value= basis • Straight-line o Based on units of time o Passage of time regardless of use o SL rate [%]  100%/life of asset o Formula:  Basis/ life= annual depr. • Contra asset accounts o Allowance for doubtful accounts o Accumulated depreciation • Basis= cost of asset- residual value • A/R= [A/R- acc. Dep] • Units-of-activity o Based on unites of output o Usage NOT time o Formula:  Basis/estimated units= unit rate  Production x unit rate • Expenditures during useful life o Capital expenditure  Material  Benefit both current & future periods  Debit asset a/c o Revenue expenditure  Immaterial  Benefits current period only  Debit expense a/c • Asset disposal o Voluntary  Abandonment [“scrapping”] • Potential loss but never gain  Sale • Potential loss or gain • Proceeds o Proceeds > book value= gain o Proceeds < book value= loss o Proceeds = book value= neither o involuntary
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