Depreciation

plant asset includes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use. 3. Land is an asset with an unlimited life and, therefore, is not subject to depreciation. Land improvements have limited lives and are subject to depreciation. 4. Often the lump-sum or basket purchase includes assets with different lives that must be depreciated separately. Sometimes the purchase may include land, which is never depreciated. 5.

purchased at a cost of $2,697.50. We will calculate the difference between the accumulated Depreciation of office equipment balance and the office equipment account. We will then include the new office equipment to the balance, and then multiply the new balance by 20 percent using the declining-balance basis: NOTE (a) Office equipment DR. Depreciation Expense $4,740 CR. Accumulated Office Equipment Depreciation $4,740

| | | | | |3B | |Compute depreciation under different methods. | |Moderate | |30–40 | | | | | | | | | |4B | |Calculate revisions to depreciation expense. | |Moderate | |20–30

calculate the real value of accounts receivables and fixed assets. Uncollectible accounts receivables and depreciation reflect the offsets reported on financial statements. In accordance with generally accepted accounting principles (GAAP); two methods compute the uncollectible accounts receivable expense. Just like uncollectible accounts offset the value of accounts receivables; so do depreciation expenses counteract the value of fixed assets. Also called contra accounts, the journal entries accumulate

last five years. Therefore, I have been asked to do the following: • Make a simple adjustment by recalculating the depreciation from five years to ten years. Since the machine is paid, the depreciation really does not matter. • Make an adjusting journal entry by transferring repairs and maintenance expenses to capital assets. Depreciation and Journal Expense Adjustments Depreciation is the process of allocating the cost of an asset to expense over its useful life. It is an annual allowance for the

clearly all of the accounting changes Harnischfeger made in 1984. -In 1984, there was a switch from accelerated to straight line depreciation retroactively. Because of this, the depreciation expense decreased. -The estimated depreciation lives on certain U.S. plants, machinery and equipment changed. The economic life of these assets was increased, so the depreciation expense was lowered. -There was an improvement in the minimum pension benefit. This change produced a lower pension expense. -The

13-28) I would still go ahead and question the propriety of the directors’ allocation of the lump-sum purchase price due to the fact of the concern of the purchasing price among the several kinds of assets acquired; in which allocation was approved by the board of directors of Case Corporation, placed very high values on the tangible assets acquired and allowed nothing for goodwill. Beings I am no expert, but due to the concern with the purchase price among the assets acquired, I would end up questioning

73 Chapter 6 Deductions: General Concepts and Trade or Business Deductions SUMMARY OF CHAPTER Tax deductions are allowed to taxpayers only if specifically authorized by the Internal Revenue Code. Deductions allowable to individual taxpayers fall into four categories: trade or business expenses, expenses incurred for the production of income, losses, and personal expenses. In addition to discussing the general requirements for deductibility for each of the above types of expenses, this chapter also

a. Year 1 2 Incremental Earnings Forecast ($000s) 1 Sales 2 Costs of good sold and operating expenses other than depreciation 3 Depreciation 4 EBIT 5 Income tax at 35% 6 Unlevered Net Income 39.0 41.6 FILL IN THE NUMERS USED TO DETERMINE UNLEVERED NET INCOME b. Free Cash Flow ($000s) 1 2 7 Plus: Depreciation 8 Less: Capital Expenditures 9 Less: Increases in NWC 10 Free Cash Flow 29.0 29.6 FILL IN THE NUMERS USED

order to expand the productive or competitive posture of a business. A capital expenditure is recorded as an asset, rather than charging it immediately to expense. The fixed asset is then charged to expense over the useful life of the asset, using depreciation” (What is a capital expenditure, n.d). The distinction between revenue and capital expenditures is important because revenue expenditure is charged as soon as the cost is incurred, while capital expenditure is depreciated over the life of the