Terms
Land is an Asset w/ normal balance of Debit.
Do we depreciate land?
No. Never.
Why is lump-sum done? Whats the purpose?
To allocate the cost of each asset.
What is this used for?
To allocate the depreciation cost of an asset.
Estimated Useful Life
How long we assume the asset will last us.
What are at least 2 items that get added to the sum of cost to an asset when purchasing?
- Purchase price
- commission
-taxes
-fees
What is the first step of the lump-sum method?
option 1) listing what the 2 assets are
option 2) writing down the market value of each asset
How do you find the allocation cost per unit?
Depreciable cost / total useful units
Depreciation, what is it, to what is it done.
Depreciation is a way to allocate the cost of an asset to expense over its useful life.
Explain the difference between land and land improvements.
Land - cost to acquire land, not depreciated.
Land Improvement - separate from land, can be depreciated. Anything that has a limited life.
What value do we use for the lump-sum method?
We bought a machine for $80,000. It has a useful life of 10 years. We believe the residual value at the end of its useful life will be $5,000. The machine also has a total useful unit output of 100,000 units. What is the depreciable cost?
$75,000
Estimated Residual Value
What the company expects to be leftover after the useful life of an asset is done.
Capital Expense vs Capitalized
Capital Expense: anything that increases the capacity or useful life of an asset. -> goes into asset
Capitalized: Anything like a repair or maintenance that gets expensed.
We buy a truck and a tractor for $70,000. We want to know how much to value each asset, looking at their market value, the truck was valued at $35,000 and the tractor was valued at $50,000. What is the percentage value of each asset?
Truck: 41%
Tractor: 59%
We bought a machine for $80,000. It has a useful life of 10 years. We believe the residual value at the end of its useful life will be $5,000. The machine also has a total useful unit output of 100,000 units. What is the allocated cost per unit?
.75 dollars / unit
Depreciable Cost
Cost of Asset - RV = Depreciable Cost
What is the units of production method?
its a depreciation method, using the useful total units of an asset to allocate the depreciation expense.
We buy a truck and a tractor for $70,000. We want to know how much to value each asset, looking at their market value, the truck was valued at $35,000 and the tractor was valued at $50,000. What is the value we will account for both land and building?
Truck: $28,700
Tractor: $41,300
We bought a machine for $80,000. It has a useful life of 10 years. We believe the residual value at the end of its useful life will be $5,000. The machine also has a total useful unit output of 100,000 units. What is the depreciation expense for year 2 if they used 30,000 units.
$22,500