Depreciation is a noncash expense that reduces the value of fixed asset as a result of wear and tear, age, or obsolescence. The example of fixed asset that can be depreciated is office equipment, furniture, building, machinery, leasehold improvement, fixtures, trucks, and cars that all are not last indefinitely but it will last for more than one year. But expect land, because land is natural resources not depleted over time. Depreciation also is an allocation process. The cost to be allocated equal to acquisition minus the salvage value. It is allocated based on the estimated of useful life of asset. All the allocation method must be rational and systematic. The depreciation is the amount of the cost to be allocated within an accounting period. The depreciation can be calculated in many method, the common method is straight-line depreciation and other is accelerated depreciation method and the Units of production depreciation.
There also have some causes of depreciation for example like the physical deterioration, economic factors, time, and depletion. Like the physical deterioration, the wear and tear when a machinery or motor vehicle or fixtures and fitting are used they finally wear out. Some of
…show more content…
The formula of this method is depreciation equal total acquisition cost minus the salvage value then divided the estimated total units. For example, purchase a machine to produces shoes on the cost of RM4000000 that can produces 500000 pair of shoes over its useful life. Then the estimated that the machine has a salvage value of RM400000. Then use the unit of production method to calculate it, take the RM4000000 minus the RM400000 then divided by 500000 then the cost of per units of shoes is
...and the useful life of the machine should be calculated. Then, depending on the method used, the total cost of the machine is considered as a long term asset and depreciated over the life expectancy of the asset.
Vehicle depreciation also varies with a purchase or a lease. If someone is buying, the tax deduction will equal the full depreciation of assets per the I.R.S. schedule. If leasing it is optional to buy out the lease at the end of the term, rather than go by the I.R.S. schedule. With buying, the finance period can extend beyond the warranty period, unless warranty options are added. In contrast, with leasing, the warranty will last for the full term of the finance period no matter what.
... value, however, depreciation affects such values as operating profit and value of the company’s assets. If the depreciation is ignored, the Net Income calculations will be erroneous.
Depreciation helps match the expense of using long lived assets with the revenues the assets helped to produce> what means is that Delta ns Singapore pole Air line depreciates one of its airplanes, it is trying to match the cost of air flight to the revenue that air craft helped to produce. Because air crafts can be an item used for more than one income statement period, Delta and Singapore Airlines don't recognize the air crafts entire cost as an expense immediately. Instead, the companies record them as assets on the balance sheet. Then, in each year of the assets useful life, the companies should recognize a portion of the Item's costs as an expense.
I am trying to work out what factor makes a car decrease in value the
The method of depreciation the company uses is the straight-line method. The straight-line method is the most common method of calculating deprecation; therefore, it makes logical sense that this is the method that Lowe's Home Improvement uses.
It was the year 1987 when the Gartner Group popularized the form of full cost accounting named Total Cost of Ownership (TCO)(author, Gartner Total Cost of Ownership). Originally TCO was mainly used in the IT business sector. This changed in the 1980’s when it became clear to many organizations that there is a distinct difference between purchase price and full costs of a products ownership. This brings us towards the main strength of conducting a TCO analysis, besides taking the purchase costs into account, which consist of the amount a money an organization pays for the required service, product or capital outlay. It also considers 1. Acquisition costs; these can consist of sourcing, administration, freight, and taxes. 2. Usage costs, which consists of the costs associated with converting the given product or service into a finished product. And finally 3. End of life cycle costs; the costs or profits incurred when disposing of a product. TCO can be seen as a form of full cost accounting; it systematically collects and presents all the data for each proposed alternative.
Term “marginal” is extensively used and known with reference to the economics which means “extra”, whereas with economic view point the marginal cost is the cost of producing every extra unit; however the accounting terminology of “marginal” defines the cost incurred on production other than its fixed cost is the marginal cost. Simply, none of the technique is applied unless it serves the benefits and the marginal costing is used by the firms for its registered benefits. Among all its benefits the primary advantage it serves is its attempt to distinguish the fixed and variable costs, and the method only considers the related variable costs to be included in production cost and the fixed costs are thus later deducted out for ascertaining net profit. The inventory at the year-end is also valued on the bases of variable cost. With all these beneficial characteristics of the said system firms using marginal costing are clearly aware of its ...
...ciates its assets on a straight line basis. Both IAS 16 and GAAP, depreciates assets over its expected useful life.
To begin the analysis on Krispy Kreme, the first analysis is that of the depreciation analysis. There are three different methods to calculate depreciation and they are straight-line, units-of-production and double-declining-balance (Larson, Wild, & Chiappetta, 2005). The Krispy Kreme Company uses the straight-line method to calculate their depreciation on building, machinery, equipment and leasehold improvements. The breakdown of the depreciation on property and equipment consist of land, buildings, machinery and equipment, leasehold improvements and construction in process (Larson, Wild, & Chiappetta, 2005). Krispy Kreme’s total gross property and equipment in 2002 was a total of $156,484,000 and in 2003, it was a total of $252,770,000. The accumulated depreciation for the year 2002 was a total of $43,907,000 and for the year 2003, the total was $50,212,000. To find the net property and equipment amount, taking the gross property and equipment and subtracting the accumulated depreciation is the equation used. The net property and equipment for the year 2002 would be $112,577,000 and 2003 would be $202,558,000. Once b...
2) Knowing the selling price of the item. And from the first two pieces of data Bean is then able to calculate the profit margin generated from each individual item. Thus, profit margin = selling price – cost of item also relates to the costs of under stocking. 3) Knowing the liquidation cost of an item to calculate the costs of overstocking. With these calculations, Bean can use these methods mentioned in Q1 to decide what the final amount of items to stock are. Furthermore, Bean will need to compare the costs associated with under stocking relative to the sum of under stocking plus overstocking inventory. However, the costs of under stocking should not only include short terms losses, i.e. loss of sale for that item at that time, but also the loss of future business due to customer dissatisfaction. Bean must also consider that if a particular item is not in stock that entire purchase order may be cancelled. Costs of overstocking should include costs to hold inventory and consider that these might change if the salvage value of a product leftover is depended upon the number of units remaining at the end of the season. If there is a lot of product leftover, then the liquidation value might decrease and items will be transferred to next
Intangible assets are assets that cannot be physically held, such as copyrights, brand names, trademarks, goodwill, and patents. There are two kinds of intangible assets, definite and indefinite. Definite assets have a useful life and would be amortized ever year to decrease the value, such as trademarks and patents. Indefinite do not have a definite life time and would last as long as the company stays in business. Definite assets need to be amortized based on their useful life by determining the pattern of use for the asset. For example, if a company uses an asset 40% the first year, 30% the next year, and 15% the next 2 years, then it would amortize the value following that pattern. If they do not know the pattern they would use the straight-line
Expenditure on fixed assets can be divided into capital expenditure and revenue expenditure. Capital expenditure includes costs incurred to get a fixed asset and any subsequent expenditure that increases the earning capacity. The cost of get a fixed asset not only includes the cost of purchases, it also includes additional costs incurred in bringing the fixed asset into its condition. Take for example, a delivery costs. Capital Expenditure was include the purchase costs that less any discount received, installation costs, delivery costs, replacement costs, legal charges, and up gradation costs. Capital expenditure will increase in the fixed assets, so the accounting entry is as:
The main method used by businesses to classify assets is to split them into tangible assets, which have a separate existence from the business (examples of which would include buildings, land and machinery), and intangibles which do not. Some clear examples of intangibles include goodwill, patents, research and development expenditure and trademarks. Intangible assets are usually created within the organisation over a period of time, by the company itself, rather than acquired from an external source and are rarely sold off individually they can normally only be sold in conjunction with associated tangible assets.
For-profit organizations depreciation is important because it reduces the taxes that a corporation pays. But in organizations that do not pay taxes, the importance of depreciation expense to decision making is reduced. So the only importance of depreciation expense in a nonprofit context is restricted to making a determination about the extent to which facilities have been depreciated. In this scenario it is very important to have preventive maintenance procedures to reduce the risk of collapsing public infrastructure. Without proper maintenance of facilities, public funds in excess of projections will have to be used to replace prematurely deteriorated facilities or to fund above-normal maintenance repairs. Information about the amount of deferred maintenance can be more important to a nonprofit manager than depreciation expense