Chapter 11

• Original cost
• less: salvage value
• Depreciation base

• Activity method (units of use or production)
• Straight-line
• Sum-of-year's digits
• Declining balance method

SOY digits and DD balance are accelerated methods but OVERALL depreciation is always the same regardless of the method used

• Cost-salvage
• Estimated total service hours

=Depreciation/hour

Multiply by hours used

Depreciation as a function of time

• Cost less salvage
• Estimated service life

=Depreciation per year

Depreciation fraction (Depreciation base)

= Depreciation expense

• n (n+1)
• 2

=denominator

Does not use depreciable base--use book value

Book value (rate [double that of straight-line])=

depreciation expense

When a company writes off the carrying amount of an asset that is not recoverable

• 1- Determine future cash flows of the asset
• 2- Compare it to the carrying amt of the asset
• 3-If future cash flows < carrying amt = Impairment

• If future cash flows > carrying amt =
• No Impairment

Carrying amount - FMV = Impairment loss

• Loss on impairment xxx
• Accumulated Depreciation xxx

Similar to units of activity depreciation

• Total cost - salvage value
• Total estimated units available

= Depletion cost per unit

Each period the assets are reported at LCM or net realizable value.

Impairment loss= carrying amt less FMV + cost of disposal

No depreciation taken

restoration of impairment loss permitted