1. Long-Term and Intangible Assets
Chapter 13
Long-Term and
Intangible Assets

2. 13-1 Major Classes of Long-Term Assets
Land
Cash price
Net removal cost of warehouse
Attorney’s fees
Real estate broker’s commission
Land Improvements (Parking Lot)
Paving
Fencing
Lighting
Determining the Cost of Plant Assets
Buildings
Purchase price
Closing costs (attorney’s fees, title insurance, etc.)
Broker’s commission
Costs to make ready (remodeling, repair to roof, floors, wiring and plumbing)
Interest costs incurred to finance project (when time is required and effects material.
Equipment
Cash purchase price (invoice less discount taken)
Freight charges
Insurance during transit paid by the purchaser
Sales tax
Necessary installation and testing cots

3. 13-2 Straight-Line Depreciation
Formula for Straight-Line Method
Cost -
Salvage Value =
Depreciable Cost ÷
Useful Life
(in years)
Depreciation Expense
Example:
COST:
$20,000
SALVAGE:
$2,000
LIFE:
5 years
Cost -
Salvage Value =
Depreciable Cost
$20,000
$2,000
$18,000 ÷
Useful Life (in years)
Depreciation Expense 5
$3,600
Depreciation Schedule
Year
Depreciable Cost
Rate
Depreciation Expense 1
$18,000 X
20%
$3,600 2 3 4 5
PLANT ASSET
ACCUMULATED DEPRECIATION
20,000
Year ,600
Year ,600
Year ,600
Year ,600
Year ,600
Year ,600
Bal ,000

4. 13-3 Units-of-Activity Depreciation
Formula for Units-of-Activity Method
Depreciable Cost ÷
Total Units of Activity =
Depreciation Cost per Unit X
Units of Activity during the Year
Depreciation Expense
Example:
COST:
$20,000
SALVAGE:
$2,000
LIFE:
10,000 units
Depreciable Cost ÷
Total Units of Activity =
Depreciation Cost per Unit
$18,000
10,000
$1.80 X
Units of Activity during the Year
Depreciation Expense
2,5000
$4,500
Depreciation Schedule
Year
Cost / Unit
Units / Activity
Depreciation Expense 1
$1.80 X
2,500
$4,500 2
2,800
$5,040 3
1,100
$1,980 4
1,900
$3,420 5
1,700
$3,060
10,000
$18,000
PLANT ASSET
ACCUMULATED DEPRECIATION
20,000
Year ,500
Year ,040
Year ,980
Year ,420
Year ,060
Bal ,000

5. 13-4 Declining-Balance Depreciation
Formula for Declining-Balance Method
Book Value at Beginning of Year X
Declining-Balance Rate =
Depreciation Expense
Example:
COST:
$20,000
SALVAGE:
$2,000
LIFE:
5 years
Book Value at Beginning of Year X
Declining-Balance Rate =
Depreciation Expense
$20,000
40%
$8,000
* 1/5 X 2 = 40% (double declining)
Depreciation Schedule
Year
Book Value at Beginning of Year
Rate
Depreciation Expense 1
$20,000 X
40%
$8,000 2
12,000
$4,800 3
7,200
$2,880 4
4,320
$1,728 5
2,592
Plug
$592
$18,000
PLANT ASSET
ACCUMULATED DEPRECIATION
20,000
Year ,000
Year ,800
Year ,880
Year ,728
Year
Bal ,000

6. 13-5 Sum-of-Years’ Digit Depreciation
Depreciable Cost X
Years’ Digits in Reverse Order ÷ Sum of Years’ Digits =
Depreciation Expense
Formula for Sum-of-Years’ Digit
Example:
COST:
$20,000
SALVAGE:
$2,000
LIFE:
5 years
Depreciable Cost X
Years’ Digits in Reverse Order ÷ Sum of Years’ Digits =
Depreciation Expense
$18,000
5/15
$6,000
Depreciation Schedule
Year
Book Value at Beginning of Year
Rate
Depreciation Expense 1
$18,000 X
5/15
$6,000 2
18,000
4/15
$4,800 3
3/15
$3,600 4
2/15
$2,400 5
1/15
$1,200
PLANT ASSET
ACCUMULATED DEPRECIATION
20,000
Year ,000
Year ,800
Year ,600
Year ,400
Year ,200
Bal ,000

7. 13-6 Comparison of Depreciation Methods
ANNUAL DEPRECIATION EXPENSE
Year
Straight Line
Units-of Activity
Declining-Balance
Sum-of-Years’-Digits 1
$3,600
$4,500
$8,000
$6,000 2
3,600
5,040
4,800 3
1,980
2,880 4
3,420
1,728
2,400 5
3,060
592
1,200
$18,000

8. 13-7 Revenue and Capital Expenditures
Revenue Expenditures
Capital Expenditures
Ordinary Repairs
Maintains operating efficiency and expected productive life
Generally small amounts that occur frequently
Examples – motor tune-ups, oil changes, small repairs
i.e., minor truck repair and oil change; $52
Repairs Expense 52
Cash
Additions and Improvements
Increases operating efficiency or expected useful life
Asset account is debited
Examples – new wing to building or paneling of open pickup truck
i.e., storage racks are installed on delivery truck for $2,000
Delivery Trucks
2,000
Cash

9. 13-8 Long-Term Asset Disposals - Retirements
Fully Depreciated Asset
Asset originally purchased on 1/1/07 is discarded on 1/1/10 and there is no salvage value.
Equipment
Accumulated Depreciation – Equipment
20,000
12/31/07
5,000
12/31/08
12/31/09
12/31/10
Bal.
Book Value = $0
Entry:
20,0000
Note: When recording a plant asset disposal, the plant asset account is always credited and the related accumulated depreciation account is always debited to remove them from the books

10. 13-8 Long-Term Asset Disposals – Retirements (continued)
Asset is Not Fully Depreciated
Asset originally purchased on 1/1/07 is discarded on 1/1/10 and there is no salvage value.
Equipment
Accumulated Depreciation – Equipment
20,000
12/31/07
5,000
12/31/08
12/31/09
Bal.
15,000
Book Value = $0
Entry:
Loss on Disposal

11. 13-9 Long-Term Asset Disposals – Sales
Asset Sold at a Gain
Asset originally purchased on 1/1/07 is discarded on 1/1/10 for $8,000.
Equipment
Accumulated Depreciation – Equipment
20,000
12/31/07
5,000
12/31/08
12/31/09
Bal.
15,000
Book Value = $5,000
Entry:
Cash
8,000
Gain on Disposal
3,000
Calculation of gain or loss on disposal:
Cash proceeds
$8,000
Book value of asset
Gain on disposal
$3,000

12. 13-9 Long-Term Asset Disposals – Sales (continued)
Asset Sold at a Loss
Asset originally purchased on 1/1/07 is discarded on 1/1/10 for $3,000.
Equipment
Accumulated Depreciation – Equipment
20,000
12/31/07
5,000
12/31/08
12/31/09
Bal.
15,000
Book Value = $5,000
Entry:
Cash
3,000
Loss on Disposal
2,000
Calculation of gain or loss on disposal:
Cash proceeds
$3,000
Book value of asset
Gain on disposal
($2,000)

13. 13-10 Long-Term Asset Disposals – Exchange of Similar Assets
Asset Exchanged at a Loss
Asset originally purchased on 1/1/07 is exchanged for a similar asset on 1/1/10. Cash of $10,000 is also paid and the old asset has fair market value of $4,000 on the date of exchange.
Equipment
Accumulated Depreciation – Equipment
20,000
12/31/07
5,000
12/31/08
12/31/09
Bal.
15,000
Book Value = $5,000
Entry:
Equipment (new)
14,000
Loss on Disposal
1,000
Equipment (old)
Cash
10,000
Cost of new asset acquired:
Loss on exchange of old asset:
Fair value of old asset
$4,000
Cash paid
Book value of old asset
Cost of new asset
$14,000
Loss on disposal
($1,000)

14. Accumulated Depreciation – Equipment
13-10 Long-Term Asset Disposals – Exchange of Similar Assets (continued)
Asset Exchanged at a Gain
Asset originally purchased on 1/1/07 is exchanged for a similar asset on 1/1/10. Cash of $10,000 is also paid and the old asset has fair market value of $8,000 on the date of exchange.
Equipment
Accumulated Depreciation – Equipment
20,000
12/31/07
5,000
12/31/08
12/31/09
Bal.
15,000
Book Value = $5,000
Entry:
Equipment (new)
Equipment (old)
Cash
10,000
Cost of new asset acquired:
Gain on exchange of old asset:
Fair value of old asset
$8,000
Cash paid
Book value of old asset
$18,000
Gain on disposal
$3,000
Less: Gain on disposal
3,000
$15,000

15. Amortization Period, the Shorter of
13-11 Intangible Assets
Asset Type
Legal Life
Amortization Period, the Shorter of
Minimum
Maximum
Patents
20 years
Useful life
Franchise & Licenses
By contract of indefinite
40 years
Copyrights
Life of creator plus 50 years
Not Amortized
Goodwill
Indefinite
Trademarks & Tradenames