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                                               9

Fixed Assets and
Intangible Assets
Principles of Corporate Financial Accounting, 9e
            After studying this chapter,                 2

              you should be able to:
1. Define, classify, and account for the cost of fixed
     assets.
2.   Compute depreciation, using the following methods:
     straight-line method, units-of-production method,
     and double-declining-balance method. (sum-of-
     year-digit method)
3.   Journalize entries for the disposal of fixed assets.
4.   Compute depletion and journalize the entry for
     depletion.
5.   Describe the accounting for intangible assets, such
     as patents, copyrights, and goodwill.
6.   Describe how depreciation expense is reported in
     an income statement, and prepare a balance sheet
     that includes fixed assets and intangible assets.
                                        3




           Objective 1
Define, classify, and account for the
         cost of fixed assets.
         Nature of Fixed Assets              4


                固定資產
   Fixed assets are long-term or relatively
    permanent assets.
     They are tangible assets (有形資產)
      because they exist physically.
     They are owned and used by the business,

      not offered for sale, as part of normal
      operations.
     They have future economic benefits.

     The life for those are over 1 year.
                                             6
    Issues in Accounting for Plant Assets




ACQUISITION         USE           DISPOSAL
   取得               使用            報廢或處分
                                            7
    Issues in Accounting for Plant Assets




   Acquisition
1.Compute cost.
                                             8
        Classifying Costs

                  Is the purchased
                   item long-lived?
                YES                N0


      Is the asset used in a       Expense
       productive purpose?
     YES                NO

Fixed Assets          Investment
                                                      9
        Cost of Acquiring Fixed Assets
   The cost of acquiring fixed assets
    includes all amounts spent to get the
    asset in place and ready for use
    使資產達到可供使用的地點及狀態之前
    所發生之一切合理及必要支出
       Includes
           purchase price, tax, freight, and other
            reasonable and necessary expenditures
       Excludes
           financing charges and
            cash discounts.
                                                     12
                         Land
   Purchase price
   Sales taxes
   Permits from government
    agencies
   Broker’s commissions
   Title fees
   Surveying fees
   Delinquent real estate taxes
   Razing or removing unwanted
    buildings, less any salvage
   Grading and leveling
   Paving a public street
    bordering the land       Land   is not depreciable.
                                                 13
              Land Improvement
   Trees and shrubs
   Fences
   Outdoor lighting
   Paved parking areas
              Parking lots, driveways, fences,
                         walks, etc.



                          Depreciate
                          over useful
                             life
                                              14
                       Building
   Architects’ fees
   Engineers’ fees
   Insurance costs incurred during
    construction
   Interest on money borrowed to finance
    construction
   Walkways to and around the building
   Sales taxes
   Repairs (purchase of existing building)
   Reconditioning (purchase of existing
    building)
   Modifying for use
   Permits from government agencies
                                           15
           Machinery & Equipment
   Sales taxes
   Freight
   Installation
   Repairs (purchase of used equipment)
   Reconditioning (purchase of used
    equipment)
   Insurance while in transit
   Assembly
   Modification for user
   Testing for use
   Permits from government agencies
      Cost of Acquiring Fixed Assets         16


                excludes:

   Vandalism (故意破壞行為)
   Mistakes in installation
   Uninsured theft
   Damage during unpacking and
    installing
   Fines for not obtaining proper permits
    from government agencies
                                  21




          Objective 2
 Compute depreciation using the
  following methods: straight-line
method, units-of-production method,
 double-declining-balance method.
                                             22
     Issues in Accounting for Plant Assets




   Acquisition             Use
1. Compute cost.   2. Allocate cost to
                      periods benefited.
                                         23
             Depreciation
    Over time, fixed assets such as
     equipment, buildings, and land
    improvements lose their ability to
            provide services.
The periodic transfer of the cost of fixed
      assets to expense is called
        depreciation (折舊費用).
                                               24
                 Depreciation

 Depreciation is a cost allocation process
that systematically and rationally matches
  acquisition costs of plant assets with
      periods benefited by their use.

 Balance Sheet                  Income Statement
                     Cost
  Acquisition                      Expense
     Cost          Allocation
   (Unused)                         (Used)
    未消耗                              已消耗
                                                 25
           Reasons for Depreciation
   Physical depreciation (實體性折舊)
       occurs from wear and tear while in
        use and from the action of the
        weather.
   Functional depreciation (功能性折舊)
       occurs when a fixed asset is no
        longer able to provide services at the
        level for which it was intended.
                                                 26
            Accounting for Depreciation
   Adjusting entry
       debits “Depreciation Expense”

       credits “Accumulated Depreciation”
           The use of a contra asset account (資產抵銷
            科目) allows the original cost to remain
            unchanged in the fixed asset account.
                                                  27
      Accounting for Depreciation


                 Depreciation for       Income
Depreciation
 Expense         the current year      Statement




                                        Balance
Accumulated    Total depreciation to
Depreciation   date of balance sheet     Sheet
                                            28
     Accounting for Depreciation
          Partial Balance Sheet


Fixed Assets                      $XX,XXX
Less: Accumulated Depreciation
     -XX Equipment                XX,XXX

Net Book Value (淨帳面價值)            $XX,XXX
        Net Book Value ≠ Market Value
                                               29




   The net book value (淨帳面價值) of a
    fixed asset in the balance sheet usually
    does not agree with the market value
    (市場價值), realized from its sale.
     Fixed assets are held for use in a business
      rather than for sale.
     It is assumed that the business will

      continue as a going concern.
         Depreciation ≠ Cash Saving
                                                   30




   Depreciation does not provide cash
    needed to replace fixed assets as they
    wear out. Depreciation does not
    require an outlay of cash in the period
    in which it is recorded.
       The cash account is neither increased or
        decreased by the periodic entries that
        transfer the cost of fixed assets to
        depreciation expense accounts.
                                               32
Factors in Computing Depreciation
The calculation of depreciation requires
    three amounts for each asset:
(a) cost,
(b) its expected useful life, and
(c) its estimated residual value at the end
    of the useful life.
       Also called the scrap value, salvage
        value, or trade-in value.
        The Fixed Asset’s Initial Cost     33


                 取得成本
   The cost of acquiring fixed assets
    include all amounts spent to get the
    asset in place and ready for use.
     Purchase price,
     Tax,

     Freight, and

     Other reasonable and necessary

      expenditures
                                        34
   Expected Useful life 耐用年限
A fixed asset’s expected useful life must
 also be estimated at the time the asset
           is placed in service.
                                                    35
              Expected Useful life
   For financial reporting purposes,
       estimates of expected useful lives are
        available from various trade associations
        and other publications.


   For federal income taxes purposes,
       the Internal Revenue Service (內地稅務局;
        相當於我國之國稅局)has established
        guidelines for useful lives.
                                       36
       Residual Value 殘值
A fixed asset’s residual value is the
 value to be received when to dispose
the fixed asset at the end of the useful
                  life.
                                                     37
         Depreciable Cost 可折舊成本
   The depreciable cost

       is the difference between its initial cost
        and its residual value of a fixed asset

       which is the amount that is spread over
        the asset’s life as depreciation expense.
                                        38
         Depreciation Methods
 Straight-line method 直線法

 Units-of-production 生產數量法

 Accelerated Method 加速遞減法
     Double-declining-balance, and
      倍數餘額遞減法
     Sum-of-the-years-digits method.
      年數合計法
                                                                       39
       Use of Depreciation Methods
               Straight-Line               Units-of-Production
               Declining-Balance           Others

                        3%     7%

                      2%




                                            88%
Source: Accounting Trends & Techniques, 59th ed., American Institute
of Certified Public Accountants, New York, 2005.
                                          40
   Straight-Line Method (SLM)
The straight-line method provides for
   the same amount of depreciation
  expense for each year of the asset’s
               useful life.

                              Estimated
                     Cost –   Residual
    Annual                      Value
                 =
 DFepreciation        Estimated Life
                                                           41
                Straight-Line Method
   When an asset is used for only part of a
    year, the annual depreciation is
    prorated.
    非期初取得時,折舊費用提列係以期間
    為基礎加以分攤
       Assume that the fiscal year ends on
        December 31, and that the asset is placed
        in service on October 1.
           The depreciation for the first fiscal year of use
            would be 3/12 of annual depreciation.
                                                           42
             SLM Depreciation Rate
   The annual depreciation may be
    converted to
       a percentage of the depreciable cost;
         A useful life of 20 years converts to a 5%.
         A useful life of 8 years converts to a 12.5%.




       a fraction of the depreciable cost.
         An asset with a three-year useful life is 1/3.
         An asset with a eight-year useful life is 1/8.
                                                        43

   Straight-Line Method Example
An asset costs $24,000. Its estimated
   residual value is $2,000 and its
      estimated life is 5 years.
                      Cost – Estimated Residual Value
Annual depreciation =
                               Estimated Life



Annual depreciation =      $24,000 – $2,000
                                5 years

Annual depreciation =        $4,400
             Depreciation Table                                  44


           of Straight Line Method
       Depreciation   Accumulated    Accumulated    Undepreciated
        Expense       Depreciation   Depreciation      Balance
Year     (debit)        (credit)       Balance       (book value)
2001                                                $       24,000
2002   $     4,400    $     4,400    $     4,400            19,600
2003   $     4,400          4,400          8,800            15,200
2004   $     4,400          4,400         13,200            10,800
2005   $     4,400          4,400         17,600             6,400
2006   $     4,400          4,400         22,000             2,000
       $    22,000    $    22,000


                                         Salvage Value
SLM
                 $10,000
                                                                                                                       45
                  $9,000


  Depreciation
                  $8,000


   Expense
                  $7,000                                                            Depreciation Expense
                  $6,000
                  $5,000                                                              is reported on the
                  $4,000                                                             Income Statement.
                  $3,000
                  $2,000
                  $1,000
                      $0
                           2001 2002 2003 2004 2005 2006
                           For the year ended December 31



                                                   $30,000

                                                   $25,000     $24,000
Net Book Value is
                                      Book Value



                                                   $20,000               $19,600
 reported on the
                                                   $15,000                         $15,200
 Balance Sheet.
                                                   $10,000                                   $10,800

                                                                                                       $6,400
                                                    $5,000
                                                                                                                  $2,000
                                                       $0
SLM                                                          2001    2002      2003      2004      2005         2006
                                                                             As of December 31
                                                           46




   The straight-line method is widely used
    by firms because it
     is simple and
     provides a reasonable transfer of cost to

      periodic expenses
           by assuming that the asset is used about the
            same from period to period.
            每期所提供的效能是一致的
                                          47

 Example Exercise 9-2

Equipment that was acquired at the
beginning of the year at a cost of
$125,000 has an estimated residual
value of $5,000 and an estimated useful
life of 10 years.
 Determine the
 (a)depreciable cost,
 (b)straight-line rate, and
 (c)annual straight-line depreciation.
                                               48

 Follow My Example 9-2

a) Depreciable cost
   $120,000 ($125,000 – $5,000)

b) Depreciation rate: 10% = (1/10)


c) $12,000
   ($120,000 x 10%) or ($120,000 ÷ 10 years)
 For Practice: PE 9-2A, PE 9-2B
                                     49
    Units-of-Production Method


The units-of-production method provides
  for the same amount of depreciation
 expense for each unit produced or each
   unit of capacity used by the asset.
                                                50
       Units-of-Production Method
Step 1:
 Depreciation   =    Cost - Salvage Value
   Per Unit          Total Estimated Units
                         of Production


Step 2:
                                     Number of
 Depreciation       Depreciation
                =                × Units Produced
   Expense            Per Unit
                                    in the Period
                                                        51




An asset costs $24,000. Its estimated
    residual value is $2,000 and its
 expected to have an estimated life of
        10,000 operating hours.
                      Cost – Estimated Residual Value
Hourly Depreciation =
                              Estimated Hours

                         $24,000 – $2,000
Hourly Depreciation =
                      10,000 Estimated Hours


Hourly depreciation = $2.20 hourly depreciation
        Depreciation Table of Units-of-                         52


             Production Method
                                    Accumulated    Undepreciated
                     Depreciation   Depreciation      Balance
Year      Units       Expense         Balance       (book value)
 2001                                              $       24,000
 2002        2,200   $     4,840    $     4,840            19,160
 2003        3,000   $     6,600         11,440            12,560
 2004          -     $       -           11,440            12,560
 2005        3,700   $     8,140         19,580             4,420
 2006        1,100   $     2,420         22,000             2,000
            10,000   $    22,000

                                          Salvage Value

 No depreciation expense if the equipment is idle.
                                                          53




   The units-of-production method is more
    appropriate than the straight-line
    method
       when the amount of use of a fixed asset
        varies from year to year.
           This method better matches the depreciation
            expense with the related revenue.
            收益與費用有較佳的配合
                                                    54

Example Exercise 9-3

       Equipment acquired at a cost of
        $180,000 has an estimated residual
        value of $10,000, an estimated useful
        life of 40,000 hours, and was
        operated 3,600 hours during the year.
        Determine the
        depreciable cost,
        depreciation rate, and
        the units-of-production depreciation for
         the year.
                                 55

 Follow My Example 9-3

a) $170,000
    ($180,000 – $10,000)


b) $4.25 per hour
    ($170,000/40,000 hours)


c) $15,300
    (3,600 hours x $4.25)
For Practice: PE 9-3A, PE 9-3B
 Double-Declining-Balance Method          56


              (DDB)

The double-declining-balance method
     provides for a declining periodic
  expense over the estimated useful life
               of the asset.

  Also called “accelerated depreciation
           method”. 加速折舊法
                                                 57
   Double-Declining-Balance Method
Step 1:
  Straight-line                100 %
                  =
depreciation rate     Useful life in periods

Step 2:
                             Straight-line
Double-declining-
                  = 2 ×      depreciation
  balance rate
                                 rate

Step 3:
Depreciation   Double-declining-   Beginning period
             =                   ×
  expense        balance rate        book value
             Ignores salvage value
                                     60




A depreciable asset cost $24,000. Its
estimated residual value is $2,000 and
    and its estimated life is 5 years.
                   .
                                                                61
Year    Double-      Depreciation        Accum.       Book Value
       Declining-      for Year           Depr.         At End
        Balance                          At End        Of Year
         Rate                            of Year
          (1)            (2)= (4)         (3)=           (4)=
                    of last year x (1)    ∑(2)        $24,000-(3)
0                                                     $24,000.00
1           40%           $9,600.00       $9,600.00    14,400.00
2           40%            5,760.00      $15,360.00     8,640.00
3           40%            3,456.00       18,816.00     5,184.00
4           40%             2,076.60      20,889.60     3,110.40
5           40%             1,110.40      22,000.00     2,000.00
                                                               62
Year    Double-      Depreciation        Accum.      Book Value
       Declining-      for Year           Depr.        At End
        Balance                          At End       Of Year
         Rate                            of Year
          (1)            (2)= (4)         (3)=          (4)=
                    of last year x (1)    ∑(2)       $24,000-(3)
0                                                    $24,000.00
1           40%           $9,600.00     $9,600.00     14,400.00
2           40%            5,760.00    $15,360.00      8,640.00
3           40%         $24,000 x 0.40 18,816.00
                           3,456.00                    5,184.00
4           40%             2,076.60     20,889.60     3,110.40
5           40%             1,110.40     22,000.00     2,000.00
                                                              63
Year    Double-      Depreciation        Accum.     Book Value
       Declining-      for Year           Depr.       At End
        Balance                          At End      Of Year
         Rate                            of Year
          (1)            (2)= (4)         (3)=         (4)=
                    of last year x (1)    ∑(2)      $24,000-(3)
0                                                   $24,000.00
1           40%           $9,600.00     $9,600.00    14,400.00
2           40%            5,760.00    $15,360.00     8,640.00
3           40%            3,456.00     18,816.00     5,184.00
                        $14,400 x 0.40
4           40%            2,076.60     20,889.60     3,110.40
5           40%            1,110.40     22,000.00     2,000.00
                                                                64
Year    Double-      Depreciation        Accum.       Book Value
       Declining-      for Year           Depr.         At End
        Balance                          At End        Of Year
         Rate                            of Year
          (1)            (2)= (4)         (3)=           (4)=
                    of last year x (1)    ∑(2)        $24,000-(3)
0                                                     $24,000.00
1           40%           $9,600.00       $9,600.00    14,400.00
2           40%            5,760.00      $15,360.00     8,640.00
3           40%            3,456.00       18,816.00     5,184.00
4           40%             2,076.60      20,889.60     3,110.40
5           40%             1,110.40      22,000.00     2,000.00
                                                                65
Year    Double-      Depreciation        Accum.       Book Value
       Declining-      for Year           Depr.         At End
        Balance                          At End        Of Year
         Rate                            of Year
          (1)            (2)= (4)         (3)=           (4)=
                    of last year x (1)    ∑(2)        $24,000-(3)
0                                                     $24,000.00
1           40%           $9,600.00       $9,600.00    14,400.00
2           40%            5,760.00      $15,360.00     8,640.00
3           40%            3,456.00       18,816.00     5,184.00
4           40%             2,073.60      20,889.60     3,110.40
5           40%             1,110.40      22,000.00     2,000.00
                                                                  66
Year    Double-      Depreciation        Accum. Depr. Book Value
       Declining-      for Year             At End      At End
        Balance                             of Year    Of Year
         Rate
          (1)            (2)= (4)           (3)=           (4)=
                    of last year x (1)      ∑(2)        $24,000-(3)
0                                                       $24,000.00
1           40%           $9,600.00         $9,600.00    14,400.00
2           40%            5,760.00        $15,360.00     8,640.00
3           40%            3,456.00         18,816.00     5,184.00
4           40%             2,073.60        20,889.60     3,110.40
5           40%             1,244.00        22,134.00     1,865.60
    DEPRECIATION STOPS WHEN BOOK
                                                   STOP
    VALUE EQUALS RESIDUAL VALUE!
                                                                  68
Year    Double-      Depreciation        Accum. Depr. Book Value
       Declining-      for Year             At End      At End
        Balance                             of Year    Of Year
         Rate
          (1)            (2)= (4)           (3)=           (4)=
                    of last year x (1)      ∑(2)        $24,000-(3)
0                                                       $24,000.00
1           40%           $9,600.00         $9,600.00    14,400.00
2           40%            5,760.00        $15,360.00     8,640.00
3           40%            3,456.00         18,816.00     5,184.00
4           40%             2,073.60        20,889.60     3,110.40
5           40%             1,111.40        22,000.00     2,000.00

                                            Desired ending
       “Forced” annual
                                             book value
                                                    69




   For the first year of use,
       the initial actual cost of the asset, without
        deducting the residual value, is
        multiplied by the double-declining balance
        rate and multiplies by the year fraction.
   After the first year,
       the declining book value (cost minus
        accumulated depreciation) of the asset is
        multiplied by this rate.
                                                  70




   Double-declining-balance method is
    most appropriate when

       the decline in an asset’s productivity or
        earning power is greater in the early years
        of its use than in later years.
                                                       71




   Using the double-declining-balance
    method is often justified because
       repairs tend to increase with the age of an
        asset.
           The reduced amounts of depreciation in later
            years are thus offset to some extent by
            increased repair expenses.
                                           72
Double-Declining-Balance Method

              Depreciation       Repair
                Expense         Expense
Early Years       High            Low
Later Years       Low             High




      Early years’ total expense approximates
              later years’ total expense.
                                       73
Double-Declining-Balance Method

                              Repair
                             Expense
          Depreciation
           Expense




      1        2         3      4
                                                            74
       Sum-of-the-Years-Digits (SYD)
    Depreciation expense is determined by
     multiplying the original cost of the asset
     less its estimated residual value by a
     smaller fraction each year.
                                   The number of years of
                                  useful life remaining at the
Depreciation                       beginning of each year
            = (Cost-Residual) X
 Expense                           Sum of the digits of the
                                  years of the asset’s useful
                                              life
                                        75
     Sum-of-the-Years-Digits
Assume an asset with a cost of $24,000,
an estimated residual value of $2,000,
and an estimated useful life of five
years.

Calculate the annual depreciation for
each year.
                                              76
          Sum-of-the-Year-Digits

Y  Cost    Rate Depreciation Accum.      Book
E  Less             for       Dep.       Value
A Residual         Year      At End     at End
R Value                      of Year    of Year
1 $22,000 5/15    $7,333.33 $7,333.33 $16,666.67
2  22,000 4/15     5,866.67 13,200.00 10,800.00
3  22,000 3/15     4,400.00 17,600.00   6,400.00
4  22,000 2/15     2,933.33 20,533.33   3,467.67
5  22,000 1/15     1,467.67 22,000.00   2,000.00
                                           77
         Partial Year Depreciation
   When the date an asset is first put into
    service is not the beginning of a fiscal
    year, each full year’s depreciation must
    be allocated between the two fiscal
    years benefited.
                                        78
Example of Partial Year Depreciation
Assume that at September 1, 2007, A
company purchased a fixed asset by
$24,000 with an estimated residual
value of $2,000, and an estimated
useful life of five years.

Determine the depreciation for year 1
and year 2.
                                     79
           Sum-of-the-Years-Digits
   Year 1
       $22,000 X 5/15 X 3/12


   Year 2
     $22,000 X 5/15 X 9/12
     $22,000 X 4/15 X 3/12
                                              80

Example Exercise 9-4

Equipment that was acquired at the beginning
of the year at a cost of $125,000 has an
estimated residual value of $5,000 and an
estimated useful life of 10 years.
   Determine the
   (a) depreciable cost,
   (b) double-declining-balance rate, and
   (c) double-declining balance depreciation for
       the first year.
                                     81
Follow My Example 9-4

a) $120,000 ($125,000 – $5,000)


b) 20% [(1/10) x2]


c) $25,000 ($125,000 x 20%)



    For Practice: PE 9-4A, PE 9-4B
                                                                              82

     Summary of Depreciation Methods
 Method         Useful           Depreciable      Depreciation Depreciation
                 Life               Cost             Rate       Expense
Straight-     Years         Cost Less             Straight-line   Constant
line                        Residual Value        rate*
Units-of-  Total      Cost less                   (cost-residual Variable
Production estimated residual value               value)/total
           units of                               estimated
           production                             units of
                                                  production
Double-       Years         Declining book       Straight-ling    Declining
declining-                  value, but not       rate*X2
Balance                     below residual value


*straight-line rate = (1/useful life)
                                                                                                                                                 83
                    Comparing Depreciation Methods
                        Straight-Line                                                                               Units-of-Production
           $5,000                                                                                 $10,000

           $4,000                                                                                  $8,000




                                                                                   Depreciation
Depreciation




                                                                                     Annual
  Annual




           $3,000                                                                                  $6,000

           $2,000                                                                                  $4,000

           $1,000                                                                                  $2,000

               $0                                                                                     $0
                    1   2       3                  4            5                                           1        2         3         4   5
                            Life in Years                                                                                Life in Years

                                                                        Double-Declining-Balance
                                                   $10,000
                                    Depreciation




                                                       $8,000
                                      Annual




                                                       $6,000

                                                       $4,000

                                                       $2,000

                                                          $0
                                                                    1       2            3              4       5
                                                                                Life in Years
                                                89
     Revising Depreciation Rates


  Predicted                       Predicted
salvage value                     useful life


                So depreciation
                is an estimate.

Over the life of an asset, new information
  may come to light that indicates the
  original estimates were inaccurate.
                                                                  90
  Revising Depreciation Estimates
When the estimates of the residual value
 and the useful life are revised, they are
   used to determine the depreciation
        expense in future period.
  They do not affect the amounts of
    depreciation expense recorded in
              earlier years.

Statement of Financial Accounting Standards No. 154 “Accounting
Changes and Error Corrections.”
                                              91
Revising Depreciation Estimates
 A machine purchased for $140,000 was
originally estimated to have a useful life of
five years and a residual value of $10,000.
  The asset has been depreciated for two
    years using the straight-line method.


         Annual          $140,000 – $10,000
    Depreciation (S/L) =       5 years

         Annual
                         $26,000 per year
    Depreciation (S/L) =
                                          92




 At the end of two years, the asset’s
book value is $88,000, determined as
                follows:

Asset Cost                     $140,000
Less: Accumulated Depreciation   52,000
Book Value, end of second year $ 88,000
                                                  93
 During the third year, the company estimates
   that the remaining useful life is eight years
(instead of three) and that the residual value is
           $8,000 (instead of $10,000).
   Depreciation expense for each of the
remaining eight year is determined as follows:

Book value, end of second year          $88,000
Less revised estimated residual value     8,000
Revised remaining depreciation cost     $80,000
Revised annual depreciation expense     $10,000
($80,000/8 years)
                                                         94
    Example Exercise 9-5

       A warehouse with a cost of $500,000 has
        an estimated residual value of $120,000,
        an estimated useful life of 40 years, and is
        depreciated by the straight-line method.
         Determine the amount of annual depreciation.
         Determine the book value at the end of the
          20th year of use.
         If at the start of the 21st year it is estimated
          that the remaining life is 25 years and that the
          residual value is $150,000, determine the
          depreciation expense for each of the
          remaining 25 years.
                                   95

 Follow My Example 9-5

a.   $9,500
      [($500,000 – $120,000)/40]
b.   $310,000
     [$500,000 – ($9,500 x 20)]
c.   $6,400
      [310,000 – $150,000)/25]


For Practice: PE 9-5A, PE 9-5B
                                             96
     Issues in Accounting for Plant Assets




                           Use
                   2. Allocate cost to
   Acquisition
                      periods benefited.
1. Compute cost.
                   3. Account for
                      subsequent
                      expenditures.
                                                      98

  REVENUE                      CAPITAL
EXPENDITURES                EXPENDITURES
   收益支出                        資本支出
  Expenditures that           Expenditures that
benefit only the current     improve the asset or
         period              extend its useful life

Normal and ordinary        1) Additions 增添
repairs and                2) Improvements 改良
maintenance                3) Extraordinary Repairs
正常及普通維修                       大修
                                                       100
  Revenue and Capital Expenditures
                     Financial Statement Effect

                                     Current Current
Treatment     Statement      Expense Income Taxes

  Capital    Balance sheet
Expenditure account debited Deferred Higher       Higher
 Revenue Income statement Currently
Expenditure account debited recognized Lower      Lower
  If the amounts involved are not material, most
           companies expense the item.
                               101

Revenue and Capital Expenditures
                                                                   102
Ordinary Maintenance and Repairs
On April 9, the firm paid $300 for a tune-up of
                 a delivery truck.


                              Journal                     Page X
     Date              Description           P.R. Debit   Credit


   Apr.     9 Repairs and Maintenance Exp.         300
                This
               Cash is a revenue                             300
                  expenditure
                   This is
            a revenue expenditure
                                                               103
             Asset Improvements
On May 4, a $5,500 hydraulic lift was installed
  on the delivery truck to allow for easier and
        quicker loading of heavy cargo.
                               Journal                Page X
     Date              Description       P.R. Debit   Credit


   May      4 Delivery Truck                  5,500
                This
               Cash is a revenue                       5,500
                  expenditure
                   This is
            a capital expenditure
                                                                    104
            Extraordinary Repairs
The engine of a forklift that is near the end of
    its useful life is overhauled at a cost of
 $4,500, which extends its useful life eight
  years. Work on the forklift was completed
                     on Oct. 14.
                               Journal                     Page X
     Date               Description           P.R. Debit   Credit
                 This is a revenue
   Oct.   14        expenditure
               Accum. Depreciation—Forklift        4,500
                Cash                                        4,500

                      This is
               a capital expenditure
                                           105

 Example Exercise 9-1

On June 18 GTS Co. paid $1,200 to
upgrade a hydraulic lift and $45 for an oil
change for one of its delivery trucks.
Journalize the entries for the hydraulic lift
upgrade and oil change expenditures.
                                                 106

 Follow My Example 9-1

June 18 Delivery Truck             1,200
          Cash                         1,200



     18 Repairs and Maintenance Exp.   45
           Cash                             45




For Practice: PE 9-1A, PE 9-1B
                                    107




          Objective 3

       Journalize entries
for the disposal of fixed assets.
                                                         108
     Issues in Accounting for Plant Assets




                           Use
   Acquisition     2. Allocate cost to
                      periods benefited.        Disposal
1. Compute cost.
                   3. Account for          4. Record disposal
                      subsequent
                      expenditures.
                                                       110
          Discarding Plant Assets

                 Update depreciation
                to the date of disposal.

                Journalize disposal by:

Recording cash                         Recording a
received (debit)                       gain (credit)
or paid (credit).                     or loss (debit).


 Removing accumulated             Removing the
  depreciation (debit).         asset cost (credit).
                                                     111
           Discarding Plant Assets

     If Cash >Update depreciation (credit).
               BV, record a gain
             to the date of disposal.
     If Cash < BV, record a loss (debit).
             = BV, no disposal by:
     If Cash Journalizegain or loss.

Recording cash                     Recording a
received (debit)                   gain (credit)
or paid (credit).                 or loss (debit).


 Removing accumulated         Removing the
  depreciation (debit).     asset cost (credit).
                                                                       112
      Discarding Fixed Assets
A piece of equipment acquired at a cost
   of $25,000 is fully depreciation. On
      February 14, the equipment is
                discarded.
                              Journal                         Page X

   Date             Description               P.R.   Debit    Credit


 Feb. 14 Accumulated Depr.—Equipment                 25,000
           Equipment                                          25,000
          To write off equipment discarded.
                                                                      113
Equipment costing $6,000 is depreciated at an
      annual straight-line rate of 10%. On
     December 31 of the preceding fiscal,
  Accumulated Depreciation—Equipment,
     after the adjusting entry, had a $4,750
  balance. The equipment was discarded on
                    March 24.
                                   Journal                       Page X
    Date                Description               P.R.   Debit   Credit



  Mar.   24 Depreciation Expense .—Equipment               150
             Accumulated Depr.—Equipment                            150
              To record current depreciation on
                                                     $600 x 3/12
                   equipment discarded.
                                                                       114




The discarding of the equipment is then
    recorded by the following entry:

                               Journal                        Page X
   Date              Description               P.R.   Debit   Credit


 Mar.   24 Accumulated Depr.—Equipment                4,900
           Loss on Disposal of Fixed Assets           1,100
            Equipment                                          6,000

           To write off equipment discarded.
                                      115

        Selling Fixed Assets
     Equipment costing $10,000 is
 depreciated at an annual straight-line
rate of 10%. The equipment is sold for
  cash on October 12. Accumulated
Depreciation (last adjusted December
31) has a balance of $7,000 and needs
            to be updated.
                                         116




 The net book value, before adjusting
     entry, is illustrated as follows.

Equipment                    $10,000
Accumulated depreciation       7,000
Net book value               $ 3,000
                                                                     117
         Update the Depreciation



                         Journal                                 Page X
  Date                  Description               P.R.   Debit   Credit


Oct.   12 Depreciation Expense—Equipment                   750
            Accumulated Depr.—Equipment                             750
              To record current depreciation on
            equipment sold (#10,000X3/4X10%)
                                        118




The net book value, after adjusting entry,
         is illustrated as follows.

 Equipment                    $10,000
 Accumulated depreciation       7,750
 Net book value               $ 2,250
                                                                    119
 Assumption 1- No gain or loss
The equipment is sold on October 12 for
   $2,250. The net book value before
          disposal is $2,250.
                           Journal                              Page X
  Date                   Description             P.R.   Debit   Credit


Oct.   12 Cash                                          2,250
          Accumulated Depr.—Equipment                   7,750
          Equipment                                             10,000

                 Sold equipment at book value.
                                                                 120
             Assumption 2-Loss
The equipment is sold on October 12 for
   $1,000. The net book value before
  disposal is $2,250. There will have a
              loss of $1,250.
                            Journal                          Page X
  Date                  Description           P.R.   Debit   Credit


Oct.   12 Cash                                       1,000
          Accumulated Depr.—Equipment                7,750
          Loss on Disposal of Fixed Assets           1,250

          Equipment                                          10,000

                  Sold equipment at a loss.
                                                                 121
            Assumption 3-Gain
The equipment is sold on October 12 for
    $2,800; the net book value before
  disposal is $2,250. There will have a
               gain of $550.
                           Journal                           Page X
  Date                 Description            P.R.   Debit   Credit


Oct.   12 Cash                                       2,800
          Accumulated Depr.—Equipment                7,750
           Equipment                                         10,000

           Gain on Disposal of Fixed Assets                     550

                 Sold equipment at a loss.
                                                    122

Example Exercise 9-6

Equipment was acquired at the beginning
of year at a cost of $91,000. The
equipment was depreciated using the
straight-line method based upon an
estimated useful life of 9 years and an
estimated residual value of $10,000.
a.What was the depreciation for the first year?
b.Assuming the equipment was sold at the end of
  the second year for $78,000, determine the gain
  or loss on sale of the equipment.
c.Journalize the entry to record the sale.
                                                      123
Follow My Example 9-6

a. $9,000 [($91,000 – $10,000)/9]


b. $5,000 gain; $78,000 – [$91,000 – ($9,000 x 2)]


c. Cash                                 78,000
   Accum. Depreciation—Equipment        18,000
     Equipment                                   91,000
     Gain on Disposal of Fixed Assets             5,000

   For Practice: PE 9-6A, PE 9-6B
                                        124
 Exchanged Fixed Assets 資產交換
 When old equipment is traded for new
  equipment, the seller often allows the
 buyer an amount for the old equipment
    traded in. This amount, called the
 trade-in allowance (抵換折讓), may be
   either greater or less than the book
         value of the equipment.
The remainder, the boot (現金), is either
  paid in cash or recorded as a liability.
                 Classification of              125


              Exchange Fixed Assets
   Similar Assets Exchange
       Exchanges of equipment having similar
        use will not significantly change the
        company’s future cash flows.
           Lacking in commercial substance.
   Dissimilar Assets Exchange
       Exchanges of equipment having dissimilar
        use will significantly change the
        company’s future cash flows.
           having commercial substance.
                                                      127
        Exchanged Fixed Assets

                        SIMILAR


     Accounting for exchanges of similar assets
 depends on whether the book value of the asset(s)
  given up is less or more than the market value of
                the asset(s) received.

A loss is recognized                   A gain is not
when the book value                recognized when the
given up is less than             book value given up is
  the market value                 more than the market
      received.                       value received.
                                              128
       Exchanged Fixed Assets
Original Cost of Old Asset
Accumulated Depreciation     Trade-in Allowance
Book Value of Old Asset            Gain
                                    or
Fair Value of Old Asset           (Loss)
                                Cash paid
                                    or
Fair Value of New Asset         (Received)
Cost for New Assets
                                129
      Exchanged Fixed Assets

      + Gain
BV出                     = FV出
      - Loss

      + Cash paid
FV出                     = FV入
      - Cash received
                                                 130
           Similar Assets Exchange
   Gains on exchanges (trade-in
    allowance) of similar fixed assets are
    not recognized for financial reporting
    purposes.
       This is based on the theory that revenue
        occurs from the production and sale of
        goods produced by fixed assets and not
        from the exchange of similar fixed assets.
                                               131
           Similar Assets Exchange
   Exception:
       Gains on exchanges (trade-in allowance)
        of similar fixed assets are recognized if
        cash (boot) is received.
                                           132
          Similar Assets Exchange
   For financial reporting purposes, losses
    are recognized on exchange of similar
    fixed assets if the trade-in allowance is
    less than the book value of the old
    equipment.
       This is based on the theory of
        conservatism (穩健主義或保守原則)
                                                      133
         Dissimilar Assets Exchange
   Gains (losses) on exchanges
       To be recognized
           No matter cash paid or received in exchange
        Similar Asset Exchange:                      134


         Cost of New Assets-in
When The trade-in allowance exceeds the
   book value of an asset traded in:
 Method One

                   List Price
  Cost of                            Unrecognized
              =        Of        -
 New Asset                              Gains
                   New Asset

 Method Two

                                     Cash Given
  Cost of         Book Value
              =                  +   (or Liability
 New Asset        Of Old Asset
                                      Assumed)
     Similar Exchange of Assets            135


       -Example one: Gains

      On June 19, assume that new
  equipment being purchased has a list
  price of $5,000. The dealer allows a
trade-in allowance of $1,100 on the old,
 similar equipment. The old equipment
  cost $4,000 and has a book value of
                  $800.
                                      136




               Old Asset New Asset
Cost              $4,000
Accum. Dep.        3,200
Book Value           800
Gain or (Loss)       300
Fair Value         1,100      5,000
Cash paid          3,900    (3,900)
Or (Received)
                                            137




                   Method One

List price of new equipment            $5,000

Trade-in allowance            $1,100
Book value of old equipment      800
Unrecognized gain on exchange           (300)

Cost of new equipment                  $4,700
                                       138




             Method Two
Book value of old equipment     $   800
Cash paid at date of exchange     3,900
Cost of new equipment           $ 4,700

Note that either method provides the
 same cost for the new equipment.
         Similar Exchange of Assets                                139


           -Example one: Gains
On June 19, equipment was exchanged
           at a gain of $300.


                                Journal                         Page X
  Date                    Description            P.R.   Debit   Credit


June     19 Equipment (new)                             4,700
            Accumulated Depr.—Equipment                 3,200
              Equipment (old)                                    4,000

              Cash                                               3,900

              To record exchange of equipment.
   Similar Exchange of Assets        140


    - Example Two: Losses

On September 7, new equipment was
  acquired by trading in old equipment
 with a cost of $7,000 and a book value
of $2,400, and giving a cash payment of
 $8,000 in exchange of new equipment
          of list price $10,000.
                                         141




                 Old Asset   New Asset
Cost                7,000
Accum. Dep.         4,600
Book Value          2,400
Gain or (Loss)        400
Fair Value          2,000       10,000
Cash paid           8,000       (8,000)
Or (Received)
                                                                   142




                              Journal                           Page X
  Date                  Description             P.R.   Debit    Credit


Sept     7 Accumulated Depr.—Equipment                  4,600
           Equipment (new)                             10,000
           Loss on Disposal of Fixed Assets              400

            Equipment (old)                                      7,000

            Cash                                                 8,000

             To record exchange of equipment.
                                              143
Example Exercise 9-7


On the first day of the fiscal year, a delivery
truck with a list price of $75,000 was
acquired in exchange for an old delivery
truck and $63,000 cash. The old truck had a
cost of $50,000 and accumulated
depreciation of $39,500.
a. Determine the cost of the new truck for
   financial reporting purposes.
b. Journalize the entry to record the
   exchange.
                                        144
     Similar Exchange of Assets

                     Old Truck New Truck
Original Cost         $50,000
Accum. Depreciation    39,500
Book Value             10,500
Trade-in Allowance
Fair Value             12,000      75,000
Cash paid (received)   63,000    (63,000)
                                                  145
Follow My Example 9-7


a. $73,500
List price of new truck                    $75,000
Trade-in allowance on old truck   $12,00
($75,000 – $63,000)                    0
Book value of old truck
($50,000 – $39,500)               10,500

Unrecognized gain on                       ( 1,500)
exchange
Cost of new truck                          $73,500
                  (or Continued)
                                                          146
 Follow My Example 9-7


Book value of old truck                        $10,500
($50,000 – $39,500)
Plus cash paid at date of exchange              63,000
Cost of new truck                              $73,500

b. Truck (new)                           73,500
   Accumulated Depreciation - Truck (old) 39,500
      Truck (old)                                50,000
       Cash                                      63,000


For Practice: PE 9-7A, PE 9-7B
                                  147




           Objective 4
Compute depletion and journalize the
        entry for depletion.
                                         148
             Natural Resources
   To be part of the fixed assets and
    Include
     Timber,
     Metal ores,

     Minerals, or

     Other natural resources.
                                     149
 Depletion of Natural Resources
The process of transferring the cost of
   natural resources to an expense
account is called depletion (折耗費用提
                   列).
                                               150
        Depletion Computation
STEP 1:
                 The Cost
 Depletion        of the          Estimated
             =                ÷
   Rate           Mineral         Quantities
                 Deposit


STEP 2:
                    The
                  Quantity
 Depletion                        Depletion
             =   Extracted    X
 Expense                            Rate
                 During the
                   Period
                                                        151
   Depletion of Natural Resources

 Total depletion cost for a period is:
   Unit Depletion                Number of Units
        Rate          ×         Extracted in Period


                                             Cost of
  Total                                    goods sold
                    Inventory
depletion
                     for sale
  cost                                       Unsold
                                            Inventory
                                       152
        Recording Depletion
A business paid $400,000 for the mining
 rights to a mineral deposit estimated at
           1,000,000 tons of ore.
   The depletion rate is $0.40 per ton
        ($400,000/1,000,000 tons).
                                                                153




If 90,000 tons are mined during the year, an
  adjusting entry is required at the end of the
              accounting period.

                       Journal                               Page X
 Date                Description             P.R.   Debit    Credit


Dec. 31 Depletion Expense                           36,000
         Accumulated Depletion                               36,000
             Depletion of mineral deposit.
                                                  154
Example Exercise 9-8

  Earth’s Treasures Mining Co. acquired
  mineral rights for $45,000,000. The mineral
  deposit is estimated at 50,000,000 tons.
  During the current year, 12,600,000 tons
  were mined and sold.
a) Determine the depletion rate.
b) Determine the amount of depletion expense for the
   current year.
c) Journalize the adjusting entry on December 31 to
   recognize the depletion expense.
                                                 155
Follow My Example 9-8


a. $0.90 per ton = $45,000,000/50,000,000 tons


b. $11,340,000 – (12,600,000 tons x $0.90 per ton)


c. Dec. 31 Depletion Expense11,340,000
           Accumulated Depletion    11,340,000
           Depletion of
           mineral deposit.
For Practice: PE 9-8A, PE 9-8B
         Fixed Assets Used in                  159


     Extracting Natural Resources




   Specialized fixed assets may be required
    to extract the natural resource.
   These assets are recorded in a separate
    account and depreciated.
                               160




         Objective 5
  Describe the accounting for
intangible assets, such patents,
    copyrights, and goodwill.
                                                          161
        The Nature of Intangible Assets
   The intangible assets
     do not exist physically;
     are long-lived assets and more than one-

      year;
     are useful in the operations of a business

      and not held for sale;
     have the future economic benefits

            but with significant uncertainty of future
             economic benefits.
                                       162
    Classifications of Intangible Assets
   With definite lives (年限有限)
     Patents (專利權),
     Copyrights (版權),




   With indefinite lives (年限無限)
     Trademarks (商標權), and
     Goodwill (商譽).
                                                          163
     Accounting for Intangible Assets
   Two major concerns:
     the initial costs and
     the amount of cost to transfer to expense,

      the amortization (攤銷費用).
         With definite lives
            To be amortized over the period

         With indefinite lives

            Not be amortized but to evaluate the

             impairment loss, if any, at the end of the
             year
                                           164
                Patents
The exclusive right granted by the federal
     government to manufacturers to
   produce and sell goods with one or
  more unique features is a patent (專利
                    權).

  These rights continue in effect for 20
                 years.
                                                           165
         The Acquisition of A Patents
   By purchase (向外購買取得)
       The initial costs of a patent include
          any related purchasing price,
          legal fees incurred and others.


   By self R&D (自行研究發展取得)
       The initial costs of a patent include
            any related legal fees incurred and others.
                                                     166
              R&D Costs for A Patent
   The R&D costs are usually accounted
    for
     as current operation expenses in the
      period in which they are incurred and
     being not capitalized to be an assets

           because the future benefits are highly
            uncertain.
                                                         167
            Amortization of A Patent
   The cost is written off, or amortized,
    over the years of the patent’s expected
    usefulness (預期使用年限).
       The period of time may
         be less than the remaining legal life of the
          patent, and
         also change as technology or consumer

          tastes change.
                                                   168
              Amortization Method
   The straight-line method is normally
    used to determine the periodic
    amortization expense.

       To debit “an expense account” and

       To credit directly to “the patents account”.
                                                                   169
Journalizing Purchasing of A Patent
  At the beginning of its fiscal year, a
   business acquires a patent right for
  $100,000. Its remaining useful life is
          estimated at 5 years.
                       Journal                                 Page X
  Date              Description               P.R.    Debit    Credit


 Dec. 31 Patent                                      100,000
          Cash                                                 100,000
         Recording of a patent acquisition.
                                                                 170
Journalizing Amortization of A Patent
                         Journal                              Page X
  Date                 Description            P.R.   Debit    Credit


 Dec. 31 Amortization Expense-Patents                20,000
           Patents                                            20,000
          Patent amortization ($100,000/5).



Because a patent (and other intangible assets) does
   not exist physically, it is acceptable to credit the
                          asset.
 This approach is different from physical fixed
   assets that require the use of a contra asset
                       account.
                                        171
              A Copyright
The exclusive right granted by the federal
 government to publish and sell a literary,
   artistic, or musical composition is a
              copyright (版權).

A copyright extends for 70 years beyond
            the author’s death.
                                           172
        The Acquisition of A Copyright
   By purchase
       The initial costs should include
         purchase price,
         legal costs and others.


   By self R&D
       The initial costs should include
         all costs of creating work,
         any administrative costs,

         legal costs and others.
                                      173
 The Amortization of A Copyright
The copyrights are amortized over their
        estimated useful lives.
                                                 174
                 Trademark商標
   A trademark is a unique name, term, or
    symbol used to identify a business and
    its products.
   Most businesses identify their
    trademarks with ® in their
    advertisements and on their products.
       For example, the Coke ® logo, owned by
        the Coca-Cola company.
                                      175
           Trademark
Trademarks can be registered for 10
 years and can be renewed every 10
        year period thereafter.
                                                  176
        The Acquisition of A Trademark
   By purchase
       The initial costs include
          the purchase price,
          the legal costs of registration, and

          others.


   By self R&D
       The initial costs include
          the legal costs of registration, and
          others.
                                              177
    The Amortization of A Trademark
   The costs of trademarks are not
    amortized over a useful life
       Because the trademarks are considered to
        have an indefinite useful life.
                                                178
     The Impairment of A Trademark
   The trademarks should be tested
    periodically for impaired value (價值減
    損), however.
       When a trademark is impaired from
        competitive threats or other circumstances,
        the trademark should be
         written down and
         a loss recognized
                                      179
           Goodwill 商譽
   In business, goodwill refers to an
  intangible asset of a business that is
 created from such favorable factors as
location, product quality, reputation,
       and managerial skill, etc..
For example, 7-11 convenience store.
                                        180
               Goodwill
Goodwill allows a business to earn a rate
 of return on its investment that is often
 in excess of the normal rate (超額盈
 餘) for other firms in the same business.
                                       181
               Goodwill
Generally accepted accounting principles
   permit goodwill to be recorded in the
      accounts only if it is objectively
  determined by a transaction (透過購買
                取得可入帳).
 In other words, the goodwill will not be
   recorded in the company book if the
    goodwill is created by the business
        alone (自行創造不可入帳).
                                                      182
         The Acquisition of A Goodwill
   By purchase
       The purchase of a business at a price in
        excess of the net assets (assets less
        liabilities) of the acquired business.
         The excess is recorded as goodwill.
         The goodwill is reported as an intangible

          asset.
       Goodwill often arises from merger
        transactions.
                                                       183
        The Acquisition of A Goodwill
   By self research and development
       The relevant expenditures can not be
        capitalized as an asset
           because the future economic benefits are
            uncertain.
                                                184
        The Amortization A Goodwill
   The goodwill is not amortized because
     the future economic future benefits are
      uncertain and
     the life is indefinite.
                                                           185
              Impaired Goodwill
A loss should be recorded if the business
  prospects of the acquired firm (and the
  acquired goodwill) become significantly
      impaired (無形資產-商譽減損).
                         Journal                       Page X
   Date               Description      P.R.   Debit    Credit


 Mar. 19 Loss from Goodwill Impaired          50,000
           Goodwill                                    50,000
                 Impaired Goodwill.
                                                         186
   Intangible Assets with Finite Lives
Intangible   Description     Amortization       Periodic
  Asset                        Period           Expense
Patent    Exclusive          Estimated         Amortization
          right to benefit   useful life not   expense.
          from an            to excess
          innovation.        legal life.
Copyright Exclusive          Estimated         Amortization
          right to benefit   useful life not   expense.
          from a literary,   to exceed
          artistic, or       legal life.
          musical
          composition.
                                                  187
   Intangible Assets with Infinite Lives
Intangible Description Amortization       Periodic
  Asset                  Period          Expense
Trademark Exclusive    None           Impairment
           use of a                   loss if fair
           name, term,                value less than
           or symbol.                 carrying value
                                      (impaired).
Goodwill   Excess of      None        Impairment
           purchase                   loss if fair
           price of a                 value less than
           business                   carrying value
           over its net               (impaired).
           assets.
                                       188
Example Exercise 9-9

  On December 31 it was estimated that
  goodwill of $40,000 was impaired. In
  addition, a patent with an estimated
  useful economic life of 12 years was
  acquired for $84,000 on July 1.
a. Journalize the adjusting entry on
  December 31, for the impaired goodwill.
b. Journalize the adjusting entry on
  December 31 for the amortization of the
  patent rights.
                                                        189
Follow My Example 9-9


a. Dec. 31   Loss from Impaired Goodwill    40,000
                Goodwill                          40,000
               Impaired goodwill.




b. Dec. 31   Amortization Expense—Patents    3,500
                Patents                              3,500
               Amortized patent rights
               [($84,000/12) x (6/12)].


   For Practice: PE 9-9A, PE 9-9B
                               190




         Objective 6

   Describe how depreciation
expense is reported in an income
statement, and prepare a balance
 sheet that includes fixed assets
     and intangible assets.
                                         191
    F/S Presentation of Fixed Assets
   The amount of each major class of
    fixed assets should be disclosed in the
    balance sheet or in notes.
   The related accumulated depreciation
    should also be disclosed, either by
    major class or in total.
                                              192




 The fixed assets may be shown
   at their book values (cost less accumulated
   depreciation), or

Office equipment                       $125,750
Less: accumulated depreciation           86,300
Net book value                         $ 39,450

   at their net amounts.

 Office equipment, net (Note B)         $39,450
          F/S Presentation of              193


          Natural Resources
 The cost of mineral rights or ore
 deposits is normally shown
  as part of the fixed asset section of the
   balance sheet.
 The related accumulated depletion
 should also be disclosed.
                                             194




 The mineral rights are shown
  at their book values (cost less
   accumulated depreciation), or
  at their net of depletions,
     accompanies by a note to show the amount
      of the accumulated depletion.
                                           195
F/S Presentation of Intangible Assets
 Intangible assets are usually
  reported (net of amortization) in the
   balance sheet in a separate section
   immediately following fixed assets;
  to be disclosed the balance of each
   major class at an amount net of
   amortization taken to date.
Fixed Assets and Intangible Assets in the
                                       196

             Balance Sheet
   Fixed Asset Turnover Ratio             197


        固定資產週轉率
    One measure of the revenue-
generating efficiency of fixed assets
   is the fixed asset turnover ratio.
It measures the number of dollars of
   revenue earned per dollar of fixed
  assets and is computed as follows:

  Fixed Asset           Revenues
                =
 Turnover Ratio   Average Book Value of
                      Fixed Assets
                                                 198
   Financial Analysis and Interpretation
For Marriott International, Inc. (in millions)

 Fixed Asset                 Revenue
 Turnover Ratio
                  =
                      Average Book Value
                        of Fixed Assets
 Fixed Asset                $11,550
 Turnover Ratio
                  =
                      ($2,341 + 2,389)/2
 Fixed Asset          4.88
 Turnover Ratio
                  =

Conclusion: For every dollar of fixed assets,
Marriott earns $4.88 of revenue.

				
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