Scribd Logo
Upload

Welcome to Scribd!

  • 213 views

    Depreciation (Chapter 27) : - Lies On Type of Assets Involved

    Uploaded by

    aaa
    The document discusses depreciation, which is the systematic allocation of the cost of a tangible or intangible asset over its useful life. It describes different types of depreciation including physical depreciation due to wear and tear, and functional/economic depreciation due to obsolescence. Common depreciation methods are also summarized such as straight-line, declining balance, and sum of the years' digits which allocate depreciation differently over the asset's life. Factors that impact an asset's depreciable amount and useful life period are also covered.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Depreciation (Chapter 27) : - Lies On Type of Assets Involved

    Uploaded by

    aaa
    213 views4 pages
    The document discusses depreciation, which is the systematic allocation of the cost of a tangible or intangible asset over its useful life. It describes different types of depreciation including physical depreciation due to wear and tear, and functional/economic depreciation due to obsolescence. Common depreciation methods are also summarized such as straight-line, declining balance, and sum of the years' digits which allocate depreciation differently over the asset's life. Factors that impact an asset's depreciable amount and useful life period are also covered.

    Original Description:

    Depreciation Reviewer

    Original Title

    Dep'n

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document discusses depreciation, which is the systematic allocation of the cost of a tangible or intangible asset over its useful life. It describes different types of depreciation including physical depreciation due to wear and tear, and functional/economic depreciation due to obsolescence. Common depreciation methods are also summarized such as straight-line, declining balance, and sum of the years' digits which allocate depreciation differently over the asset's life. Factors that impact an asset's depreciable amount and useful life period are also covered.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    213 views4 pages

    Depreciation (Chapter 27) : - Lies On Type of Assets Involved

    Uploaded by

    aaa
    The document discusses depreciation, which is the systematic allocation of the cost of a tangible or intangible asset over its useful life. It describes different types of depreciation including physical depreciation due to wear and tear, and functional/economic depreciation due to obsolescence. Common depreciation methods are also summarized such as straight-line, declining balance, and sum of the years' digits which allocate depreciation differently over the asset's life. Factors that impact an asset's depreciable amount and useful life period are also covered.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    You are on page 1of 4

    DEPRECIATION [CHAPTER 27]

    DIFFERENCE
    - Lies on type of assets involved
    DEPRECIATION DEPLETION AMORTIZATION
    ✓ PPE ✓ Wasting assets ✓ Intangible assets

    CONCEPT OF DEPRECIATION
    ❖ The systematic allocation of the depreciable amount of an asset over its useful
    life.
    ❖ Not matter of valuation
    ❖ Cost allocation in recognition of exhaustion of the useful life
    ❖ An expense [may be part of costs of goods manufactured or an operating expense]
    KINDS OF DEPRECIATION

    • Wear and tear - due to frequent use


    • Passage of time - due to nonuse
    PHYSICAL DEPRECIATION • Action of elements - sunshine, wind, rain or
    - Related to wear and tear and dust
    deterioration • Casualty or aaccident - fire, flood, etc.
    • Disease or decay - applicable to animals or
    wooden building

    • Inadequacy - no longer useful to the entity


    because of increase of production ['DI NA
    FUNCTIONAL / ECONOMIC SAPAT :'(]
    DEPRECIATION • Supersession - new asset became available
    - Arises from indequacy, [PINAGPALIT]
    supersession, and obsolescence • Obsolescence - catchall, no future demand,
    encompasses inadequacy and supersession
    [WALA NANG KWENTA]

    FACTORS OF DEPRECIATION / DEFINITION OF TERMS


    ▪ Carrying Amount - amount at which an asset is recognized after deducting any
    accumulated depreciation and accumulated impairment losses.
    DEPRECIATION [CHAPTER 27]
    ▪ Depreciable amount - cost of an asset, or other amount substituted for cost, less
    its residual value.
    ▪ Residual value - estimated amount that an entity would currently obtain from
    disposal of the asset, after deducting the estimated costs of disposal, if the asset
    were already of the age and in the condition expected at the end of its useful life.
    ▪ Useful life
    o period over which an asset is expected to be available for use by an entity;
    o number of production or similar units expected to be obtained from the asset
    by an entity.

    SERVICE LIFE PHYSICAL LIFE


    - Useful life - How long the asset shall last

    DEPRECIATION METHOD

    VARIABLE DECREASING
    CHANGE / USE CHNAGE OR
    EQUAL / UNIFORM OTHERS
    FACTOR / ACCELERATED /
    ACTIVITY METHOD DIMINISHING

    SYD - Sum of
    Inventory /
    Straight Line the Years'
    Working hours Appraisal
    Digits
    / Service hours

    Composite Declining Retirement


    method Balance method

    Output or
    production Double Replacement
    Group Method
    Declining Method

    A. STRAIGHT LINE - spreads the cost of the fixed asset evenly over its useful life.
    DEPRECIATION [CHAPTER 27]
    B. DECLINIING BALANCE - it results in higher depreciation expense in the earlier
    years of ownership.
    a. Don’t deduct salvage value when figuring the depreciable base for the
    declining balance method
    C. SUM OF THE YEARS’ DIGITS - Compute depreciation expense by adding all
    years of the fixed asset’s expected useful life and factoring in which year you are
    currently in, as compared to the total number of years.
    D. GROUP DEPRECIATION METHOD - used for depreciating multiple-asset
    accounts using straight-line-depreciation method. Assets must be similar in
    nature and have approximately the same useful lives.
    E. COMPOSITE DEPRECIATION METHOD - applied to a collection of assets that
    are not similar, and have different service lives. For example, computers and
    printers are not similar, but both are part of the office equipment.

    KEY OBSERVATIONS
    ▪ SL provides uniform depreciation, SYD and Double-declining provides accelerated
    and declining depreciation while production provides variable amount of
    depreciation.

    ▪ SL, SYD and Production method uses depreciable amount from beginning to end.
    Double declining ignores the residual value in the initial year and depreciates the
    book value after that, but still adheres to the depreciation of the depreciable
    amount only that’s why the depreciation in year 4 is only the difference between
    the book value and residual value. Year four is also the final year of depreciation
    because at this point the asset is fully depreciated.
    DEPRECIATION [CHAPTER 27]
    ▪ Depreciation for SYD and Double-Declining for a portion of a year is computed by
    multiplying the amount of depreciation by the number of month’s outstanding
    divided by 12. For example depreciation in the second year of the useful life for 9
    months shall be 360,000 (480,000 x 9/12) for SYD and 396,000 (528,000 x 9/12)
    for Double-Declining.

    EXTRA INFORMATION (DEPRECIABLE AMOUNT AND DEPRECIABLE PERIOD)


    ▪ The depreciable amount of an asset shall be allocated on a systematic basis over
    its useful life.
    ▪ The residual value and the useful life of an asset shall be reviewed at least at each
    financial year- end and, if expectations differ from previous estimates, the
    change(s) shall be accounted for as a change in an accounting estimate
    ▪ Depreciation is recognized even if the fair value of the asset exceeds its carrying
    amount; as long as the asset’s residual value does not exceed its carrying amount.
    Repair and maintenance of an asset do not negate the need to depreciate it.
    ▪ The residual value of an asset may increase to an amount equal to or greater than
    the asset’s carrying amount. If it does, the asset’s depreciation charge is zero
    unless and until its residual value subsequently decreases to an amount below the
    asset’s carrying amount.
    ▪ Depreciation of an asset begins when it is available for use. Depreciation of an
    asset ceases at the earlier of the date that the asset is classified as held for sale
    and the date that the asset is derecognized. Therefore, depreciation does not
    cease when the asset becomes idle or is retired from active use unless the asset
    is fully depreciated. However, under usage methods of depreciation the
    depreciation charge can be zero while there is no production.
    Factors are considered in determining the useful life of an asset:
    A. Expected usage of the asset - Usage is assessed by reference to the asset’s
    expected capacity or physical output.
    B. Expected physical wear and tear, which depends on operational factors such
    as the number of shifts for which the asset is to be used and the repair and
    maintenance programme, and the care and maintenance of the asset while idle.
    C. Technical or commercial - obsolescence arising from changes or
    improvements in production, or from a change in the market demand for the
    product or service output of the asset.
    D. Legal or similar limits on the use of the asset, such as the expiry dates of related
    leases.

    You might also like