PPE PPT - Ch10

Property,
Plant and
Equipment
and
Intangibles
CHAPTER
10
PowerPoint Slides to accompany
Fundamental Accounting Principles, 14ce
Prepared by
Joe Pidutti, Durham College
2013 McGraw-Hill Ryerson Limited.
Learning Objectives
1.
Describe property, plant and equipment (PPE) and calculate their cost. (LO1)
2.
Explain, record, and calculate depreciation using the methods of straight-line,

units of production, and double-declining balance. (LO2)
3.
Explain and calculate depreciation for partial years. (LO3)
4.
Explain and calculate revised depreciation. (LO4)
5.
Explain and record impairment losses. (LO5)
6.
Account for asset disposal through discarding, selling, or exchanging an asset.

(LO6)
7.
Account for intangible assets and their amortization. (LO7)
Property, Plant and Equipment (PPE)

Characteristics:
Non-current assets used in the operations of a company.
Have a useful life greater than one accounting period.(More than 1 year)
May be classified as Tangible or Intangible.
Also referred to as Fixed Assets.
Examples: buildings, land, equipment, machinery, leasehold improvements, and

vehicles.
LO 1
Intangible Assets
Lack physical substance.
Examples: patents, trademarks, copyrights, leaseholds
and drilling rights.
Cost of PPE
PPE are recorded at cost, which includes all normal and
reasonable expenditures necessary to get the asset in
place and ready for its intended use.
LO 1
Capital Expenditures
Are costs of PPE that provide material benefits

extending beyond the current period.
Are reported on the balance sheet under PPE.
(Cost of machine, freight charges, unpacking cost, assembling cost, less discount,
non refundable sales tax (PST) cost of installation and testing of machine ,
adjusting the machine before operation etc.)
LO 1
Revenue Expenditures
Are costs that maintain an asset but do not materially

increase the assets life or productive capabilities.
Are reported on the income statement as expenses.
(Examples: supplies, lubricants, repair and maintenance costs of machine.)
LO 1
Subsequent Expenditures
Expenditures that make PPE more efficient or

productive and/or extend the useful life of the
PPE beyond original expectations.
Examples of C.E: roofing replacement, plant

expansion and major overhauls of machinery and
equipment.
Example of R.E: Supplies, lubricants, Fuel and Electric
power
LO 1
Land
Is not subject to depreciation.
Cost of land includes:
Purchase price
Legal fees
Real estate commissions
Accrued property taxes
Payments for surveying, grading, draining, and

clearing the land
Assessments by local governments
LO 1
Land Improvements
Assets that increase the usefulness of the land but
have a limited life.
Costs are charged to a separate PPE account.
Costs are allocated over the period they benefit.
Cost examples include parking lot surfaces, driveways,
fences and lighting systems.
LO 1
Buildings
Costs include all expenditures to make the building ready for its
intended use.
Costs are depreciated over the period they benefit.
Cost examples include purchase price, brokerage fees, taxes, title
fees and legal costs.
Leasehold improvement
Costs of alterations or improvements to leased property.
Costs are depreciated over the life of the improvements or the life
of the lease, whichever is shorter.
Examples include flooring, painting, storefronts, and partitions.
10
LO 1
Machinery and Equipment
Costs include all expenditures normal and necessary

to purchase it and prepare it for its intended use.
Costs are depreciated over the periods they benefit.
Cost examples include purchase price, less discounts,

plus non-refundable sales taxes, transportation
charges, insurance while in transit.
11
LO 1
QS- 1
Sydney Lanes installed automatic scorekeeping
equipment. The electrical work required to prepare for the
installation was $18,000. The invoice price of the
equipment was $180,000. Additional costs were $3,000
for delivery and $600 for insurance during transportation.
During the installation, a component of the equipment was
damaged because it was carelessly left on a lane and hit
by the automatic lane cleaning machine during a daily
maintenance run. The cost of repairing the component
was $2,250. What is the cost of the automatic
scorekeeping equipment?
12-12
Solution
Price of equipment
Installation Charges
Delivery charges
Insurance Expense
TOTAL
12-13
$180,000
18,000
3,000
600
201,600
Exercise 10-1
On January 10th Dalton Resources Co. purchased a machine for

$12,000, terms 4/10, n/60, FOB destination. The seller prepaid the
freight charges, $350. The machine required a special steel mounting
and power connections costing $800, and another $600 was paid to
assemble the machine and get it into operation. In moving the
machine onto its steel mounting, it was dropped and damaged. The
repairs cost $290. Later, $400 of raw materials were consumed in
adjusting the machine so that it would produce a satisfactory product.
The adjustments were normal for this type of machine and were not
the result of the damage. However, the items produced while the
adjustments were being made were not saleable. Dalton paid the
invoice on January 24th. Prepare a calculation to show the cost of this
machine for accounting purposes.
12-14
Solution
Item
Amount
Machine Costs
$ 12,000
Freight
n/a
Mounting
800
Assembly
600
Repairs
n/a
Testing materials
400
Invoice Discount
n/a
Total
12-15
$ 13,800
Exercise
ABC Manufacturing purchased a machine on August 1, 2014, and it was
installed and ready to run on January 1, 2015. The following costs were
incurred in the purchase and installation of the machine.
Invoice Price
Freight Costs
Purchase Discount
Installation Costs
Electrical and Utility Connections
Repairs to correct damage incurred during uncrating
Setting Adjustment costs
Spare parts for future use
Provincial Sales Tax
Fines incurred during transport of the machine
Cost of special foundation for the machine
Calculate the depreciable cost of the machine.
12-16
$ 1,300,000
7,000
2,500
66,000
32,000
12,000
36,000
25,000
91,000
500
6,500
Solution
TOTAL COST OF MACHINE =
Invoice price + freight costs- purchase discount+ installation cost +
electrical and utility connections + adjustment costs + provincial
sales tax + and special foundation for machine
= $1,536,000
12-17
Depreciation
A process of matching (or allocating) the depreciable cost of an

asset in a rational and systematic manner over the assets useful
life.
Depreciation does not measure the decline in market value of an

asset.
Depreciation begins to be recorded when the asset is put into use.
PPE help the organization earn revenues over several accounting

periods.
The cost of these PPE are depreciated (spread out) over these
same periods.
18
LO 2
Depreciation
Factors relevant in determining depreciation:
1.
2.
3.
19
Cost
Residual value (Value of assets at the end of
life)
Useful (service) life
LO 2
Depreciation Methods
The most commonly used methods are:
1.
2.
3.
20
Straight-line
Units-of-production
Double-declining balance
LO 2
Straight-Line Method
The same amount is expensed each period
of the assets useful life.
Straight-line
depreciation
expense
21
Cost Estimated residual value

Estimated useful life
LO 2
Illustration
A piece of shoe-inspection machinery is purchased
on January 1, 2014.
The relevant data is as follows:
Cost
Estimated residual value
Cost to be depreciated
Estimated useful life:
Accounting periods
Units inspected
22
$10,000
-1,000
$9,000
5 years
36,000 shoes
LO 2
Illustration: Straight-Line Method

Straight-line
depreciation =
Estimated useful life in years
expense
=
=
23
$10,000 $1,000
5 years
$1,800/ year
LO 2
Illustration: Straight-Line Method

The annual adjusting entry to record
depreciation on this equipment would be:
Depreciation Expense
1,800
Accumulated Deprec. -Equipment
2014
Equipment
Less: Acc. Deprec.
Book Value
24
2015
2016
1,800
2017
2018
$10,000 $10,000 $10,000 $10,000 $10,000

1,800
3,600
5,400
7,200
9,000
$8,200
$6,400
$4,600
$2,800
$1,000
LO 2
Units-of-Production Method
This method is employed when the use of an asset

varies greatly from one period to the next.
The amount charged to expense is based on the usage
of the asset.
Depreciation
=
per unit

Total estimated units of production
Annual
depreciation =
expense
Actual
depreciation per unit
x
production
25
LO 2
Illustration: Units-of-Production Method

Depreciation
per unit (shoe)
$10,000 $1,000
36,000 units (shoes)
= $.25/shoe
Assume actual production is as follows:
2014
2015
2016
2017
2018
Units (shoes) 7,000
8,000
9,000
7,000
6,000
x.25
x.25
x.25
x.25
x.25
depreciation $1,750 $2,000 $2,250 $1,750
$1,250*
*Maximum depreciation allowed since 36,000 units have been produced.

26
LO 2
Illustration: Units-of-Production Method

2014
Equipment
Less: Acc. Deprec.
Book Value
27
2015
2016
2017
2018
$10,000 $10,000 $10,000 $10,000 $10,000

1,750
3,750
6,000
7,750
9,000
$8,250
$6,250
$4,000
$2,250
$1,000
LO 2
Declining-Balance Method
This method yields larger depreciation expenses

in the early years of an assets life and smaller
charges in later years.
A depreciation rate, up to twice the straight-line

rate, is applied to the assets beginning of the
period book value.
28
LO 2
Double-Declining Balance Method

Steps:
1.
Calculate the double-declining balance rate.*

rate = 2 / (Estimated years of useful life)
2.
Calculate deprecation expense by multiplying the rate by

the assets beginning-of-period book value.
(depreciation expense = rate x book value)
*Note: Residual value is not used in these calculations.
29
LO 2
Illustration: Double-Declining-Balance Method

Rate = 2 / 5 years x 100%
= 40% per year
Year
Book Value at
start of period
Depreciation
Expense
Accumulated
Depreciation
Book Value at
end of period
2014
$10,000
40% x 10,000
= $4,000
$4,000
$6,000
2015
6,000
40% x 6,000
= 2,400
6,400
3,600
2016
3,600
40% x 3,600
= 1,440
7,840
2,160
2017
2,160
40% x 2,160
= 864
8,704
1,296
2018
1,296
296
(maximum)
9,000
30
1,000
(residual value)
LO 2
Illustration: Double-Declining-Balance Method

2014
Equipment
Less: Acc. Deprec.
Book Value
31
2015
2016
2017
2018
$10,000 $10,000 $10,000 $10,000 $10,000

4,000
6,400
7,840
8,704
9,000
$6,000
$3,600
$2,160
$1,296
$1,000
LO 2
Comparison of Methods
Period
Straightline
Units-ofproduction
DoubleDeclining
Balance
2014
$1,800
$1,750
$4,000
2015
1,800
2,000
2,400
2016
1,800
2,250
1,440
2017
1,800
1,750
864
1,250
296
$9,000
$9,000
2018
1,800
$9,000
32
LO 2
Exercise 10-8
On
January 3, 2014, Xenex Innovations purchased computer equipment for

$125,250. The equipment will be used in research and development activities
for five years or a total of 8,500 hours and then sold for about $19,000. Prepare
a schedule with headings as shown below. Calculate depreciation and book
values for each year of the equipment's life for each method of depreciation.
Xenex's year-end is December 31.
Actual Usage in hours of:
12-33
Solution:
Straight-Line1
Double-Declining-Balance2
Units-of-Production3
Year
Depreciation
Expense
BookValueat
December31
Depreciation
Expense
BookValueat
December31
Depreciation
Expense
BookValueat
December31
2014
21,250
104,000
50,100
75,150
16,875
108,375
2015
21,250
82,750
30,060
45,090
22,250
86,125
2016
21,250
61,500
18,036
27,054
30,000
56,125
2017
21,250
40,250
8,054
19,000
37,125
19,000
2018
21,250
19,000
19,000
19,000
12-34
Calculations:
1. 125,250 19,000 = 106,250/5 = 21,250
2. 2/5 = .4 or 40%; .4 x 125,250 = 50,100; .4 x (125,250 50,100) = 30,060;
.4 x (125,250 50,100 30,060) = 18,036;
.4 x (125,250 50,100 30,060 18,036) = 10,822; maximum =
8,054 calculated as cost less residual = 125,250 19,000 = 106,250 less total
deprec. taken of 98,196 = 8,054.
3. 125,250 19,000 = 106,250/8,500 = $12.50/hour;
2014 12.50 x 1,350 = 16,875;
2015 12.50 x 1,780 = 22,250;
2016 12.50 x 2,400 = 30,000;
2017 12.50 x 2,980 = 37,250;
maximum = 37,125; calculated as cost less residual = 125,250 19,000 =
106,250 less total deprec. taken of 69,125 = 37,125.
12-35
Partial-Year Depreciation
Assets may be purchased or disposed of at any time

during the year.
Depreciation for a partial year is recorded when the

purchase or disposal is made at a time other than the
beginning or end of the accounting period.
36
LO 3
Partial-Year Depreciation
Methods:
1.
Nearest whole month
If the asset is in use for more than half of the month,

depreciation is calculated for the whole month.
If the asset is in use for less than half of the month,

depreciation is not calculated for the month.
Half-year convention
2.
Six months depreciation is recorded regardless when an asset

is acquired or disposed of.
Nearest whole month and half year convention doesnt apply on
Unit of production method.
37
LO 3
Mini-Quiz
Gamma Company purchased a computer costing $4,000
on April 18. It is expected to last for three years and then
sell for $400.
Calculate depreciation for the first year using the:
1.
Straight-line method.
2.
Double declining balance method.
38
Mini-Quiz
Gamma Company purchased a computer costing
$4,000 on April 18. It is expected to last for three
years and then sell for $400.
Straight-line
depreciation
expense
Estimated useful life

$4,000 $400
=
=
39
3 years
$800
Portion
X
of year
X 8/12 year
Mini-Quiz
Gamma Company purchased a computer costing
$4,000 on April 18. It is expected to last for three
years and then sell for $400.
DDB
depreciation = DDB rate x Cost x Portion of year
expense
= (2 x 1/3) x $4,000 x 8/12

=
40
$1,778 (rounded)
Exercise 10-13
VanHoutte Foods bought machinery on September 10,
2014, for $156,000. It was determined that the
machinery would be used for six years or until it
produced 200,000 units and then would be sold for about
$26,400. Calculate annual depreciation to the nearest
whole month for 2014, 2015, and 2016. VanHoutte's
year-end is December 31. Assume the actual unit
produced are:
2014 31,000; 2015 67,000; 2016 52,000.
Required to use : Straight line and unit production methods.

12-41
Solution (1)
Calculate straight line depreciation.
156,000 26,400 = 129,600/6 = 21,600
21,600 x 4/12 = 7,200
Year
2014
2015
2016
12-42
Straight-Line
7,200
21,600
21,600
Solution (2)
Calculate Units-of-Production depreciation.
156,000 26,400 = 129,600
129,600/200,000 = $0.648/unit
2014 - 0.648 x 31,000 = 20,088
2015 - 0.648 x 67,000 = 43,416
2016 - 0.648 x 52,000 = 33,696
12-43
Revising Depreciation Rates

Depreciation rates for current and future periods may
be revised if there is a change in an assets:
1.
2.
44
Estimated residual value and/or useful life.

or
Cost due to subsequent capital expenditures.
LO 4
Changes in Estimated Residual Value

and/or Estimated Useful Life
The undepreciated cost of the asset is depreciated

(allocated) over the remaining life of the asset.
This is considered to be a change in an accounting

estimate and not an error.
45
LO 4
Changes in Estimated Residual Value

and/or Estimated Useful Life
Example: Straight-line Method
Revised
depreciation
for remaining =
years
46
Remaining
book value
Revised residual
value
Revised remaining useful life
LO 4
Revising Depreciation Rates When There is

a Subsequent Capital Expenditure
Subsequent capital expenditures cause the cost of an

asset to change.
These expenditures can be the addition of a

component to an existing asset or the replacement or
overhaul of a component.
47
LO 4
Revising Depreciation Rates When There is

a Subsequent Capital Expenditure
Revised depreciation is calculated to reflect the new

cost and/or changes in estimated life/residual value.
When a subsequent expenditure results in a

replacement of a component, the cost and accum.
depreciation of the component must be removed and a
gain or loss is recorded.
48
LO 4
Problem 10-11B
The December 31, 2014, adjusted trial balance of Ondine

Biomedical showed the following information:
Cont
During 2015, a major increase in market demand for
building space caused the company to assess the useful life
and residual value of the building. It was decided that the
useful life would be increased by five years and the residual
value increased by $48,000. At the beginning of 2015, it was
determined that the remaining estimated life of the
equipment should be 10 years and the residual value
$6,000.
Ondine Biomedical calculates depreciation using the
straight-line method to the nearest month (round
calculations to the nearest whole dollar).
Required
Prepare the entries to record depreciation on the building
and equipment for the year ended December 31, 2015.
Solution
2015
Dec
31
Depreciation Exp. - Building
1620
Accumulated Depreciation
(To record annual Dep.)
Dec
31
Depreciation Exp. - Equipment

(To record annual depreciation
on Equipment)
1620
7,320
7,320
Calculation
Cost Accumulated Depreciation Residual/ life of year
1. 274,800 134,400 108,000/20 = 1,620

2. 117,600 38,400 6,000/10 = 7,320
Impairment of PPE Assets
An impairment loss occurs when the book value of

PPE is greater than the amount to be recovered
through the assets use or sale.
Impairments may result from:

A significant decline in the market value of the
asset.
Technological, economic, or legal factors.
53
LO 5
Impairment of PPE Assets

If an impairment loss occurs:
The loss is recorded.
Depreciation is revised for future periods.
54
LO 5
Disposal of Capital Assets

Capital assets may be disposed of for a
variety of reasons such as:
1. Obsolescence
2. Wear and tear
3. Damage
4. Changing business plans
55
LO 6
Disposal of PPE
Accounting for disposal involves:
Record depreciation up to date of disposal.
Compare the assets book value with the net amount
received/paid at disposal and record any resulting
gain/loss.
Remove the balances of the disposed asset and
related accumulated depreciation accounts.
Record any cash (and other assets) received or paid
in the disposal.
1.
2.
3.
4.
56
LO 6
Exercise 10-21
Gandalf Co. purchased and installed a machine on January 1,
2014, at a total cost of $296,800. Straight-line depreciation was
taken each year for four years, based on the assumption of a
seven-year life and no residual value. The machine was
disposed of on July 1, 2018, during its fifth year of service.
Gandalf's year-end is December 31.
Required: Present the entries to record the partial year's
depreciation on July 1, 2018, and to record the disposal under
each of the following unrelated assumptions:
A.The
machine was sold for $112,000 cash.

B.Gandalf received an insurance settlement of $96,000 resulting
from the total destruction of the machine in a fire.
Exercise 10-21
Depreciation up to the beginning of 2018:
(296,800/7) 4 years = 169,600
Depreciation for 2018:
(296,800/7) 6/12 = 21,200
Exercise 10-21
2018
July 1 Depreciation Expense
To record partial year
depreciation in year of disposal
21,200
21,200
Exercise 10-21 Part A

2018
July 1 Accumulated Depreciation
Cash
190,800
112,000
Machine
Gain on Disposal
To record sale of machine for
$112,000
296,800
6,000
Exercise 10-21 Part B

2018
July 1 Accumulated Depreciation
190,800
Cash
96,000
Loss on Disposal
10,000
Machine
To record receipt of $96,000
from insurance settlement
296,800

On January 2, 2014, Dusseault Apparel disposed
of a machine that cost $84,000 and had been
depreciated $45,250. Present the journal entries to
record the disposal under the following
assumption:
The machine was sold for $32,500 cash

2014
Jan 2 Accumulated Depreciation
Cash
45,250
32,500
Loss on Disposal
Machine
To record sale of machine
6,250
84,000

On January 2, 2014, Dusseault Apparel disposed of a
machine that cost $84,000 and had been depreciated
$45,250. Present the journal entries to record the disposal
under the following assumption:
The machine was traded-in on new tools having a $117,000
cash price. A $40,000 trade-in allowance was received, and
the balance was paid in cash. Since the tools have been
customized, the fair values are not known.

2014
Tools
45,250
115,750
Cash
77,000
Machine
84,000
To record exchange of machine;

Value of assets given up = cash
+ book value of machine
Exercise 10-24 Part C

The machine plus $68,000 cash was exchanged for a cube
van having a fair value of $104,000.
Exercise 10-24 Part C

2014
Van
Loss on Disposal
Cash
Machine
To record exchange of machine;
45,250
104,000
2,750
68,000
84,000
Exercise 10-24 Part D

The machine was traded for vacant land adjacent to the
shop to be used as a parking lot. The land had a fair value
of $75,000, and Dusseault paid $25,000 cash in addition to
giving the seller the machine.
Exercise 10-24 Part D

2014
Land
Cash
45,250
75,000
25,000
Gain on Disposal
11,250
Machine
84,000
To record exchange
Exercise 10-27
Other
information:
All accounts
have normal
balances.
$38,000 of the
note payable is
due after
October 31,
2015.
Assets
Current assets:
Cash
Exercise 10-27
Accounts receivable
Less: Allowance for doubtful accounts
$ 9,600
$ 27,200
1,920
25,280
Total current assets
$ 34,880
Property, plant and equipment:

Land
Building
Less: Accumulated depreciation
Equipment
Less: Accumulated depreciation
Total property, plant and equipment
Intangible assets:
Mineral rights
Less: Accumulated amortization
Trademark
Less: Accumulated amortization
Total intangible assets
Total assets
Liabilities
Current liabilities:
Accounts payable
Current portion of long-term note
Total current liabilities
$ 89,600
$ 147,200
81,600
65,600
$184,000
110,400
73,600
228,800
$ 57,600
30,400
$ 33,600
22,400
$ 27,200
11,200
38,400
$302,080
$18,400
34,000
$ 52,400
Intangible Assets
72
Have no physical substance.

Are used in operations.
Provide future economic benefits.
Are recorded at cost when purchased.
Examples include patents, copyrights, trademarks,
drilling rights, trademarks and trade names, and
leaseholds.
LO 7
Intangible Assets
Are recorded at cost when purchased.

Cost is amortized over estimated useful life.
The straight-line method is usually used.
Are shown on the balance sheet separately from PPE.
73
LO 7
Goodwill
The amount by which the price paid for a company exceeds
the fair market value of the companys net assets if
purchased separately.
Goodwill
Is not an intangible asset.
Is reported separately on the balance sheet.
Is not amortized but may be decreased if it is impaired.
74
LO 7
Problem 10-18B (1)

On Febrary 3, 2014, Abacus Software Group
purchased the patent for a new software for cash
of $220,800. The company expects the software to
be sold over the next five years and uses the
straight-line method to amortize intangibles.
Required
Prepare entries to record the:
Purchase of the software patent, and

Straight-line amortization for the year ended
December 31, 2014, calculated to the nearest whole
month. Round to the nearest dollar.
Solution Part A & B

2014
Feb 3 Patent
220,800
Cash
(To record purchase of patent)
Dec
31
220,800
Amortization Expenses- patent 40,480

Accumulated amortization
(To record amortization on
patent)
40,480
Problem 10-18B(2)
On December 31, 2014, the company's adjusted trial balance showed the additional asset accounts shown below.
Prepare the asset section of the balance sheet at December 31, 2014, including the patent purchased on
February 3, 2014
Solution (2)
Abacus Software Group
Partial Balance Sheet
December 31, 2014
Assets
Current assets:
Cash ...................................................................... $103,200
Accounts receivable (net) ..................................... 277,200
Merchandise inventory ....................................... .135,600
Total current assets ...............................................................................................................$ 516,000
Property, plant and equipment:
Land ...................................................................... $110,400
Building ................................................................ $595,200
Less: Accumulated depreciation, building
(189,000)
406,200
Equipment ............................................................ $477,600
Less: Accumulated depreciation, equip. .................. (259,200 )
218,400
Total property, plant and equipment ..735,000
Intangible assets:
Patent .................................................................... $220,800
Less: Accumulated amortization, patent ................... 40,480
180,320
Total assets ................................................................... ..$1,431,320
Excercise
Xeno Co. incurred the following transactions concerning its machinery:
8-Jan-14
1-Jan-15
5-Jan-15
1-Jan-16
Purchased a machine for $55,000 cash and also paid $3,000 cash to have it installed.
Estimated useful life is 10 years and residual value is $5,000. Straight line depreciation is
used.
The machines useful life is changed from 10 years to 9.
General Maintenance on the machine was completed for $800.
Paid $3,800 to replace a motor in the machine. This was considered a major overhaul but
did not alter the machines useful life.
Xeno Co uses the calendar year as its fiscal year.

Prepare the journal entry to record depreciation expense for 2014.
12-79
Solution
12-80
End of Chapter
81

PPE PPT - Ch10

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Property,

Explain, record, and calculate depreciation using the methods of straight-line,

Explain and calculate depreciation for partial years. (LO3)

Explain and calculate revised depreciation. (LO4)

Explain and record impairment losses. (LO5)

Account for asset disposal through discarding, selling, or exchanging an asset.

Account for intangible assets and their amortization. (LO7)

2013 McGraw-Hill Ryerson Limited.

Property, Plant and Equipment (PPE)

Examples: buildings, land, equipment, machinery, leasehold improvements, and

2013 McGraw-Hill Ryerson Limited.

2013 McGraw-Hill Ryerson Limited.

Are costs of PPE that provide material benefits

Are reported on the balance sheet under PPE.

2013 McGraw-Hill Ryerson Limited.

Are costs that maintain an asset but do not materially

Are reported on the income statement as expenses.

(Examples: supplies, lubricants, repair and maintenance costs of machine.)

2013 McGraw-Hill Ryerson Limited.

Expenditures that make PPE more efficient or

Examples of C.E: roofing replacement, plant

2013 McGraw-Hill Ryerson Limited.

Real estate commissions

Accrued property taxes

Payments for surveying, grading, draining, and

Assessments by local governments

2013 McGraw-Hill Ryerson Limited.

2013 McGraw-Hill Ryerson Limited.

2013 McGraw-Hill Ryerson Limited.

Machinery and Equipment

Costs include all expenditures normal and necessary

Costs are depreciated over the periods they benefit.

Cost examples include purchase price, less discounts,

2013 McGraw-Hill Ryerson Limited.

2013 McGraw-Hill Ryerson Limited.

2013 McGraw-Hill Ryerson Limited.

On January 10th Dalton Resources Co. purchased a machine for

2013 McGraw-Hill Ryerson Limited.

2013 McGraw-Hill Ryerson Limited.

2013 McGraw-Hill Ryerson Limited.

2013 McGraw-Hill Ryerson Limited.

A process of matching (or allocating) the depreciable cost of an

Depreciation does not measure the decline in market value of an

Depreciation begins to be recorded when the asset is put into use.

PPE help the organization earn revenues over several accounting

2013 McGraw-Hill Ryerson Limited.

2013 McGraw-Hill Ryerson Limited.

2013 McGraw-Hill Ryerson Limited.

Cost Estimated residual value

2013 McGraw-Hill Ryerson Limited.

2013 McGraw-Hill Ryerson Limited.

Illustration: Straight-Line Method

2013 McGraw-Hill Ryerson Limited.

Illustration: Straight-Line Method

$10,000 $10,000 $10,000 $10,000 $10,000

2013 McGraw-Hill Ryerson Limited.

This method is employed when the use of an asset

Cost Estimated residual value

2013 McGraw-Hill Ryerson Limited.

Illustration: Units-of-Production Method

Units (shoes) 7,000

depreciation $1,750 $2,000 $2,250 $1,750

*Maximum depreciation allowed since 36,000 units have been produced.