1 / 30

LESSON 8-1

LESSON 8-1. Buying Plant Assets. TERMS REVIEW. page 228. plant asset record real property personal property assessed value. PLANT ASSET RECORD. page 225. 1. 2. 3. 1. Complete when asset is purchased. 2. Complete when asset is disposed of.

madaline-dunlap
Download Presentation

LESSON 8-1

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. LESSON 8-1 Buying Plant Assets

  2. TERMS REVIEW page 228 • plant asset record • real property • personal property • assessed value LESSON 8-1

  3. PLANT ASSET RECORD page 225 1 2 3 1. Complete when asset is purchased. 2. Complete when asset is disposed of. 3. Complete each year to record annual depreciation expense. LESSON 8-1

  4. BUYING A PLANT ASSET FOR CASH page 226 January 2. Paid cash for new copying machine, $1,680.00. Check No. 62. LESSON 8-1

  5. BUYING A PLANT ASSET ON ACCOUNT page 226 January 2. Bought an office computer on account from Discount Computers, $3,300.00. Memorandum No. 70. LESSON 8-1

  6. Assessed Value ´ Tax Rate = Annual Property Tax CALCULATING AND PAYING PROPERTY TAX page 227 Feb 1. Paid cash for property tax, $3,250.00. Check No. 122. LESSON 8-1

  7. LESSON 8-2 Calculating and Journalizing Depreciation Expense

  8. TERMS REVIEW page 234 • straight-line method of depreciation • book value of a plant asset LESSON 8-2

  9. Original Cost $2,000.00 – Estimated Salvage Value – 175.00 = Estimated Total Depreciation Expense $1,825.00  Years of Estimated Useful Life  5 = Annual Depreciation Expense $ 365.00 Beginning Book Value – Annual Depreciation = Ending Book Value STRAIGHT-LINE DEPRECIATION page 230 LESSON 8-2

  10. 2. Calculate accumulated depreciation. RECORDING DEPRECIATION ON PLANT ASSET RECORDS page 231 1 2 3 1. Calculate annual depreciation expense. 3. Calculate ending book value. LESSON 8-2

  11. Depreciation Expense—Office Equipment Dec. 31 Adj. 11,571.00 Accumulated Depreciation—Office Equipment Jan. 1 Bal. 37,434.00 Dec. 31 Adj. 11,571.00 Dec. 31 Bal. 49,005.00 JOURNALIZING ANNUAL DEPRECIATION EXPENSE page 232 LESSON 8-2

  12. Annual Depreciation Expense $ 120.00  Months in a Year  12 Monthly Depreciation Expense $ 10.00 × Number of Months Asset Is Used × 5 Partial Year’s Depreciation Expense $ 50.00 CALCULATING DEPRECIATION EXPENSE FOR PART OF A YEAR page 232 LESSON 8-2

  13. LESSON 8-3 Disposing of Plant Assets

  14. DISCARDING A PLANT ASSET WITH NO BOOK VALUE page 235 January 5, 20X6. Discarded storage cabinet: original cost, $275.00; total accumulated depreciation through December 31, 20X5, $275.00. Memorandum No. 72. 1. Record entry to remove plant asset from accounts. 1 2. Write the date, amount, and type of disposal. 2 LESSON 8-3

  15. DISCARDING A PLANT ASSET WITH A BOOK VALUE page 236 June 30, 20X6. Discarded office table: original cost, $200.00; total accumulated depreciation through December 31, 20X5, $140.00; additional depreciation to be recorded through June 30, 20X6, $20.00. Memorandum No. 92. 1. Record a partial year’s depreciation expense. 1 2. Record the partial year’s depreciation. 4 3. Write the date, amount, and type of disposal. 3 4. Record entry to remove plant asset from accounts. 2 LESSON 8-3

  16. SELLING A PLANT ASSET page 267 January 4, 20X6. Received cash from sale of fax machine, $185.00: original cost, $600.00; total accumulated depreciation through December 31, 20X5, $400.00. Receipt No. 60. 3 1 2 1. Compute the gain or loss on the sale. 2. Write the date, amount, and type of disposal. 3. Record entry to remove plant asset from accounts. LESSON 8-3

  17. TRADING A PLANT ASSET page 238 June 27, 20X6. Paid cash, $850.00, plus old counter for new store counter: original cost of old counter, $1,000.00; total accumulated depreciation through June 27, 20X6, $765.00. Memorandum No. 130 and Check No. 154. 1. Compute the original cost of the new plant asset. 4 1 2. Write the date and type of disposal and the disposal amount. 2 3 3. Complete section 1 for the new plant asset. 4. Record entry to remove old plant asset and add new plant asset. LESSON 8-3

  18. SELLING LAND AND BUILDINGS page 239 January 2, 20X6. Fidelity Company sold land with a building for $97,000.00 cash; original cost of land, $25,000.00; original cost of building, $150,000.00; total accumulated depreciation on building through December 31, 20X5, $85,000.00. Receipt No. 105. 1. Compute the gain on sale of plant assets. 2. Write the date, type, and amount of disposal. 2 3. Record entry to remove plant assets from accounts. 3 1 LESSON 8-3

  19. CALCULATING THE GAIN ON SALE OF LAND AND BUILDINGS page 240 LESSON 8-3

  20. TERMS REVIEW – lesson 8-4 declining-balance method of depreciation – Multiplying the book value at the end of each fiscal period by a constant depreciation rate – Used to depreciate more of the asset in the early years of its use – Salvage value is not used in calculating the annual depreciation expense sum-of-the-years-digits method of depreciation – Using fractions based on the number of years of a plant asset’s useful life. Calculate by multiplying the total depreciation expense by the fraction for that year Lesson 8-4, page 240

  21. TERMS REVIEW – Cont’d production-unit method of depreciation – Calculating estimated annual depreciation expense based on the amount of production expected from a plant asset Modified Accelerated Cost Recovery System – a depreciation method required by the IRS to be used for income tax calculation purposes for most plant assets placed in service after 1986 – classify assets as belonging to “5” and “7” year property classes; assume purchase half way through the year; calculate by multiplying original cost by the rate for that year (rates determined by IRS). Not a generally accepted depreciation method for financial reporting. Depletion – decrease in value of a plant asset due to removal of a natural resource Lesson 8-4, page 240

  22. declining-balance method of depreciation – Multiplying the book value at the end of each fiscal period by a constant depreciation rate – Used to depreciate more of the asset in the early years of its use – Salvage value is not used in calculating the annual depreciation expense

  23. Plant asset: Computer Original cost: $2,000.00 Depreciation method: Declining balance Estimated salvage value: $175.00 Estimated useful life: 5 years Beginning Declining- Annual Ending Year Book Value Balance Rate Depreciation Book Value 1 2 1. Calculate the declining-balance rate. Total Depreciation Expense 100%  Estimated Useful Life (years)  5 = Straight-Line Rate 20%  Double the Rate  2 = Declining-Balance Rate 40% 2. Calculate the annual depreciation for year 3. Beginning Book Value $720  Depreciation Rate  40% = Annual Depreciation Expense $288 DECLINING-BALANCE METHOD OF DEPRECIATION 1 $2,000.00 40% $ 800.00 $1,200.00 2 1,200.00 40% 480.00 720.00 3 720.00 40% 288.00 432.00 4 432.00 40% 172.80 259.20 5 259.20 40% 84.20 175.00 Total ———— Depreciation — $1,825.00 — Lesson 8-4, page 234

  24. sum-of-the-years-digits method of depreciation – Using fractions based on the number of years of a plant asset’s useful life. Calculate by multiplying the total depreciation expense by the fraction for that year

  25. Plant asset: Computer Original cost: $2,000.00 Depreciation method: Sum-of-the-years-digits Estimated salvage value: $175.00 Estimated useful life: 5 years 1 Beginning Total Annual Ending Year Book Value Fraction Depreciation Depreciation Book Value 2 1. Calculate the fraction. Years’ Digits Fraction 1 5/15 2 4/15 3 3/15 4 2/15 5 1/15 Total 15 2. Calculate the annual depreciation for year 1. Original Cost $2,000.00 Estimated Salvage Value – 175.00 Estimated Total Depreciation $1,825.00 Year’s Fraction  5/15 Annual Depreciation $608.33 SUM-OF-THE-YEARS-DIGITS METHOD OF DEPRECIATION 1 $2,000.00 5/15 $1,825.00 $ 608.33 $1,391.67 2 1,391.67 4/15 $1,825.00 486.67 905.00 3 905.00 3/15 $1,825.00 365.00 540.00 4 540.00 2/15 $1,825.00 243.33 296.67 5 296.67 1/15 $1,825.00 121.67 175.00 Total — ——— Depreciation $1,825.00 Lesson 8-4, page 235

  26. Plant asset: Computer Original cost: $2,000.00 Depreciation method: Comparison Estimated salvage value: $175.00 Estimated useful life: 5 years Straight-Line Double Declining-Balance Sum-of-the-Years-Digits Year Method Method Method COMPARISON OF THREE METHODS OF DEPRECIATION 1 $ 365.00 $ 800.00 $ 608.33 2 365.00 480.00 486.67 3 365.00 288.00 365.00 4 365.00 84.20 243.33 5 365.00 121.67 Total Depreciation $1,825.00 $1825.00 $1,825.00 Lesson 8-4, page 236

  27. production-unit method of depreciation – Calculating estimated annual depreciation expense based on the amount of production expected from a plant asset

  28. Plant asset: Truck Depreciation method: Production-unit Estimated total depreciation: $16,200.00 Original cost: $18,200.00 Estimated useful life: 90,000 miles Estimated salvage value: $2,000.00 Depreciation rate: $0.18 per mile driven 1 Beginning Miles Annual Ending Year Book Value Driven Depreciation Book Value 2 1. Calculate the depreciation rate. Original Cost $18,200 – Estimated Salvage Value – 2,000 = Est. Total Depreciation Expense $16,200  Estimated Useful Life (miles)  90,000 = Depreciation Rate $0.18/mile 2. Calculate annual depreciation for year 1. Total Miles Driven 9,000  Depreciation Rate  $0.18 = Annual Depreciation Exp. $1,620.00 PRODUCTION-UNIT METHOD OF DEPRECIATION 1 $18,200.00 9,000 $ 1,620.00 $ 16,580.00 2 16,580.00 23,000 4,140.00 12,440.00 3 12,440.00 25,000 4,500.00 7,940.00 4 7,940.00 22,000 3,960.00 3,980.20 5 3,980.20 8,000 1,440.00 2,540.00 Totals 87,000 $15,600.00 Lesson 8-4, page 237

  29. Modified Accelerated Cost Recovery System – a depreciation method required by the IRS to be used for income tax calculation purposes for most plant assets placed in service after 1986 – classify assets as belonging to “5” and “7” year property classes; assume purchase half way through the year; calculate by multiplying original cost by the rate for that year (rates determined by IRS). Not a generally accepted depreciation method for financial reporting.

  30. Plant asset: Printer Original cost: $2,000.00 Depreciation method: MACRS Property class: 5 year Year Depreciation Rate Annual Depreciation     CALCULATING DEPRECIATION EXPENSE FOR INCOME TAX PURPOSES 1 20.00% $400.00 2 32.00% 640.00 3 19.20% 384.00 4 11.52% 230.40 5 11.52% 230.40 6 5.76% 115.20 Totals 100.00% $2,000.00 Lesson 8-4, page 238

More Related