Chapter 8 Accounting for Plant Assets

 Plant asset record – a sheet that we create when we buy the plant asset and it helps keep track of the depreciation per year, accumulated depreciation, and the book value of the asset

PLANT ASSET RECORD No. ________________ General Ledger Acct. No. ____________ Description: Display Case General Ledger Acct. Store Equipment Date Bought: Jan. 2nd 2004Serial Number: Original Cost: $1,250 Estimated Useful Life 5 yearsEstimated Salvage Value: $250 Depreciation Method: Straight Line Method Disposed of:DiscardedSoldTraded Date________________________________ Disposal Amount:______________________________ Year Annual Depreciation Expense Accumulated Depreciation Ending Book Value

More Definitions  Real Property – Land and anything attached to it (that is why we call it real estate)  Personal Property – All property not classified as real property  Assessed Value – is the value of an asset determined by tax authorities for the purpose of calculating taxes

Paid cash for property tax Feb 1. Paid cash for property tax, $3250. Check No. 122 Cash Payments General Account s Payable Debit Purch Disc Cr DateAccount Title Ch. No Post RefDebitCreditGolfTennis Cash Credit 1-FebProperty Tax Expense

Section 8-2 Depreciation  Original Cost  The value the plant asset was to us when we purchased it.  Estimated Salvage Value  What we believe the asset will be worth when we can not depreciate it any more.  Estimated Useful Life  How many years we are allowed to depreciate the asset (determined by the government)

Straight-line method of depreciation  The asset decreases by the same value each year. Original cost -Estimated Salvage Value Estimated Total Depreciation Divided by useful years Annual Depreciation expense

Original cost $2000 -Estimated Salvage Value 175 Estimated Total Depreciation $1825 Divided by useful years 5 Annual Depreciation expense$365 per year

Our plant asset record would look something like this if we bought the asset at the beginning of the year. year Annual Depreciation Accumulated Depreciation Ending book Value Original Cost

Now remember at the end of each year we have to adjust or bring our accounts up to date. General Journal DateAccount Title Doc No. Post Ref DebitCredit Dec31Depr. Exp - Office Equipment Accum Depr.- Office Equipment 11571

Partial year depreciation Annual Depreciation 365 Divided by months in year12 Monthly Depreciation per month X number of months used5 Partial Year Depreciation152.10

8-3 Disposing of a plant asset  Three ways in which we can dispose of a plant asset  Is fully depreciated and has no value to us  We sell it for more than book value  We sell it for less than book value

How do we find out how much it is for us? year Annual Depreciation Accumulated Depreciation Ending book Value Original Cost

What are things we need to do in order to write off the asset. 1.We need to record any depreciation that has happened up to the point when we sell something. 2.We need to write off the original cost of the asset. 3.We need to write off the accumulated depreciation on the asset 4.We need to record any cash or asset received from the transaction

June 30, 2006 Discarded office table: original cost $200; total accumulated depreciation through December 31, 2005, $140; additional depreciation to be recorded through June 30, $20.00 Memorandum 92

What is important about this transaction June 30, 2006 Discarded office table: original cost $200; total accumulated depreciation through December 31, 2005, $140; additional depreciation to be recorded through June 30, $20.00 Memorandum 92 Lets go back to the slide where it tells us what we need to record…….

What are things we need to do in order to write off the asset. 1.We need to record any depreciation that has happened up to the point when we sell something. 2.We need to write off the original cost of the asset. 3.We need to write off the accumulated depreciation on the asset 4.We need to record any cash or asset received from the transaction

General Journal DateAccount Title Doc No. Post Ref DebitCredit Dec31Depr. Exp - Office Equipment 20 Accum Depr.- Office Equipment 20

What is important about this transaction June 30, 2006 Discarded office table: original cost $200; total accumulated depreciation through December 31, 2005, $140; additional depreciation to be recorded through June 30, $20.00 Memorandum 92 Lets go back to the slide where it tells us what we need to record…….

General Journal DateAccount Title Doc No. Post Ref DebitCredit Dec31Depr. Exp - Office Equipment 20 Accum Depr.- Office Equipment 20 Dec31Accum Depr.- Office Equipment 160 Loss on Plant Asset 40 Office Equipment 200 June 30, 2006 Discarded office table: original cost $200; total accumulated depreciation through December 31, 2005, $140; additional depreciation to be recorded through June 30, $20.00 Memorandum 92

Selling a plant asset January 4, 2006, Received Cash from the sale of a fax machine, $185: original cost, $600 total accumulated depreciation through December of 2005 $400 Receipt No. 60 Because of the date there is no additional accumulated depreciation so there is no need for an adjustment. Cash Receipts Journal Doc No Post Ref General A /R Credit Sales Tax PayableSales Credit Sales Discount Debit Cash Credit DateAccount TitleDebitCreditDebitCreditGolfTennisGolfTennis 4-JanAccum. Depr- Office EquipR Loss on Plant Asset 15 Office Equip 600

Trading a Plant Asset June 27, Paid cash, $850 plus old counter for new store counter: original cost of old counter $1000; total accumulated depreciation through June 27 $765 Memo 130 and Check No Remove the original cost of the old plant asset and its related accumulated depreciation 2.Recognizes the cash paid 3.Record the new plant asset at it original cost Cash Receipts Journal Doc No Post Ref General A/R Credit Sales Tax PayableSales Credit Sales Discount Debit Cash Credit DateAccount TitleDebitCreditDebitCreditGolfTennisGolfTennis 4-JanStore EquipmentR Accum. Depr-Store Equip 765 Store Equipment 1000

Selling Land and Buildings January 2, 2006 Fidelity Company sold land with a building for $97,000 cash; original cost of land $25,000 original cost of building $150,000; total accumulated depreciation on building through December 31, 2005 $85,000 Receipt No. 105 Cash Receipts Journal Doc No Post Ref General A/R Credit Sales Tax PayableSales Credit Sales Discount Debit Cash Credit DateAccount TitleDebitCreditDebitCreditGolfTennisGolfTennis 2-JanAccum Depr - BuildingR land Building Gain on Plant Asset 7000

8-4 Other methods of Calculating Depreciation

Declining – Balance method of depreciation Year Beginning Book Value Declining- Balance RateAnnual Depreciation Ending Book Value % % % % % % / 5 = 20% x 2 = 40% Total Dep / Est. Useful years X 2 = Declining Balance Rate We can not go below what the estimated salvage value is…..

Sum of the years digits We add up all of the years and use it as a fraction of how much should be depreciated over that year = 15 Year Beginning Book ValueFraction Total Depreciation Annual Depreciation Ending Book Value / / / / /

Production-Unit Method of Depreciation This method is used when an asset like a truck is used a lot. Orig cost18,200 Est. Salvage Value-2000 Total Depreciation16,200 Estimated Useful life (divide)90,000 Miles Depreciation Rate.18 per mile YearBeg Book ValueMiles DrivenAnnual Dep Ending Book Value 118, , , , , ,540

M.A.C.R.S Modified Accelerated Cost Recovery System A depreciation method required by the IRS to be used for income tax calculation purposes for most plant assets in service after 1986 YearDepreciation RateAnnual Depreciation 120% % % % % % Rates are given by the IRS

Last Slide!!!!!!!!!! Depletion The decrease in the value of a plant asset because of the removal of a natural resource Original Cost100,000 Estimated Salvage Value-12,250 Estimated Total Value of Coal87,750 Estimated Tons of Recoverable coal divide50,000 Depletion Rate per Ton of Coal$1.755 Year Beg Book Value Tons Recovered Annual Depletion Ending Book Value