Key Terms
Also called
Fixed assets, plant assets, or Property, Plant, and Equipment (PP&E). Listed as noncurrent assets on the balance sheet.
Exception
Legal costs to DEFEND an internally developed intangible (like a patent) CAN be capitalized.
Example
Press cost $58,000, accumulated depreciation $28,800, book value $29,200.
Ask
Does this cost extend the useful life of the asset or improve its capability beyond the original estimate?
Historical cost
All costs to acquire the asset and put it into service.
Useful life
Estimated period the asset will generate revenue. Salvage (residual) value: Estimated value at end of useful life.
Then
Rate x Units used in period = depreciation for that period
Or
Book value x Straight-line rate x 2
Formula
(Net book value - New salvage value) / Remaining useful life
Debit
Loss on Sale (if sold below book value)
Credit
Gain on Sale (if sold above book value)
Natural resources are assets consumed when used
Lumber, oil, minerals. Recorded at cost on the balance sheet as fixed assets.
Contra account
Accumulated depletion (same role as accumulated depreciation).
Three key differences from depreciation
1. Straight-line method ONLY (no accelerated options) 2.
Physical obsolescence
Asset deteriorates physically. Functional obsolescence: asset still works but is no longer useful for its intended purpo