term1 Definition1term2 Definition2term3 Definition3
Please sign in to your Google account to access your documents:
Service Life or useful life(interchangeable)
Estimated use the company expects to receive from the asset before disposing of it.
Expressed in units of time or activity
Physical life: Provides the upper bound for service life of tangible, long-lived assets. Will vary according to the purpose for which the asset is required and the environment in which it is operated.
Service life may be less than physical life for a variety of reasons, such as expected obsolescence or:
1. more efficient technology
2. market that demands new products, limiting current machinery's usefulness.
3. Economic feasibility of extraction methods
4. For intangibles, legal or contractual life is limiting factor
5. Management intent
Range of service lives for different categories of assets are disclosed by companies.
Allocation base
value of the usefulness that is expected to be consumed
initial value less salvage value
Allocation method
pattern in which the usefulness is expected to be consumed.
Should be systematic and rational and correspond to the pattern of asset use.
Objective is to allocate cost to the period in an amount that is proportional to the amount of benefits generated by the asst during the period relative to the total benefits provided by the asset during its life.
two approaches:
1. time based
2. activity based
Salvage value or residual value
amount the company expects to receive for the asset at the end of its service life less any anticipated disposal costs.
In certain situations, residual value can be estimated by referring to a company's prior experience or to publicly available information concerning reseal values of various types of assets.
However, estimating residual value for many assets can be very difficult due to uncertainty about the future. Thus, along with this reason and the fact that residual values are immaterial, many companies simply assume a residual value of zero.
time based
passage of time
activity-based
input or output
Multiplies depreciable base by a declining fraction, resulting in depreciation that decreased by the amount year.
accelerates depreciation in systematic manner
denominator remains cost, while numerator decreases each year
denominator is the sum of one to n
numerator begins with value of n and decreases each year.
no logical foundation
Straight line
Allocates an equal amount of depreciable base to each year of the asset's service life.
Double-declining balance(DDB) method
When 200% is used as the multiple for the straight line rate, it's twice the straight line rate.
Group Depreciation Method
Defines the collection as depreciable assets that share similar service lives and other attributes, such as for a fleet of vehicles or machinery.
Need help typing ? See our FAQ (opens in new window)
Please sign in to create this set. We'll bring you back here when you are done.
Discard Changes Sign in
Please sign in to add to folders.
Sign in
Don't have an account? Sign Up »
You have created 2 folders. Please upgrade to Cram Premium to create hundreds of folders!