# Chap008

Decent Essays
CHAPTER 8
REPORTING AND INTERPRETING
PROPERTY, PLANT, AND EQUIPMENT;
INTANGIBLES; AND NATURAL RESOURCES
PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA

McGraw-Hill/Irwin

Insufficient
capacity results in lost sales.
How much is enough?

Costly excess capacity reduces profits. 8-2

CLASSIFYING LONG-LIVED ASSETS
Actively Used in Operations

Expected to Benefit Future Periods

Tangible
Physical
Substance

Intangible
No Physical
Substance
8-3

CLASSIFYING LONG-LIVED ASSETS

Land
Assets subject to depreciation
 Buildings and equipment
 Furniture and
cost.

 Estimated
Estimated useful useful life. life. 
 Estimated
Estimated residual residual value. value. Alternative
Alternative depreciation depreciation methods: methods: 
 Straight-line
Straight-line

Units-of-production
Units-of-production

 Accelerated
Accelerated Method:
Method: Declining
Declining balance balance 8-15

STRAIGHT-LINE METHOD
Depreciation
Expense per Year

=

Cost - Residual Value
Useful Life in Years

At the beginning of the year, Southwest purchased ground equipment for \$62,500 cash. The equipment has an estimated useful life of 3 years and an estimated residual value of \$2,500.
Depreciation
Expense per Year

=

Depreciation
Expense per Year

=

\$62,500 - \$2,500
3 years
\$20,000
8-16

STRAIGHT-LINE METHOD
Depreciation Accumulated
Expense
Depreciation
Year
(debit)
(credit)
1
2
3

\$ 20,000
20,000
20,000
\$ 60,000

\$

\$

20,000
20,000
20,000
60,000

Accumulated
Depreciation
Balance
\$

20,000
40,000
60,000

Undepreciated
Balance
(book value)
\$
62,500
42,500
22,500
2,500

Residual Value

SL

More companies use the straight-line method of depreciation in their financial