In the first lesson we examined what transactions should be included in the plant and asset cost and which should not. We also determined formulas to approximate the amount used up (amortized) over the useful life of the asset
Today:
CHAPTER STUDY OBJECTIVES
5. Describe and demonstrate the procedure
for revising periodic amortization. Revisions of periodic amortization
are made in present and future periods, not retroactively. The new annual
amortization is found by dividing the net book value less the revised (if
applicable) residual value at the time of the revision by the remaining useful
life.
6. Distinguish between operating and
capital expenditures, and prepare the entries for these expenditures.
Operating expenditures are incurred to maintain the operating efficiency and
expected productive life of the asset. These costs are debited from Repair
Expense as incurred. Capital costs increase the operating efficiency,
productive capacity, or expected useful life of the asset. These expenditures
are debited from the property, plant, or equipment account affected. They are
subsequently amortized over an appropriate period of time, usually the
remaining life of the asset.
7. Explain how to account for the disposal
of property, plant, and equipment. The accounting for disposal of a
piece of property, plant, and equipment through retirement or sale is as
follows:
(a) Update any unrecorded
amortization.
(b) Eliminate the asset and
accumulated amortization accounts at the date of disposal.
(c) Record the cash proceeds or
payment, if any.
(d) Account for the difference
between the book value and the cash proceeds and the net book value as a gain
(proceeds less net book value) or loss (net book value less proceeds) on
disposal.
8. Calculate the periodic amortization of
natural resources. Natural resources generally use the
units-of-activity method of amortization. Cost less residual value plus any
restoration costs equals the amortizable cost. Calculate amortizable cost per
unit by dividing the total amortizable cost by the number of units estimated to
be in the resource. Then multiply the amortizable cost per unit by the number
of units extracted and sold.
Lesson copy click here
Comments