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Financial Accounting: A Managerial Perspective: Sixth Edition

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KARISHMA SANGHAI
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187 views15 pages

Financial Accounting: A Managerial Perspective: Sixth Edition

Uploaded by

KARISHMA SANGHAI
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Financial Accounting:

A Managerial Perspective
Sixth Edition

Prepared by
R. Narayanaswamy
Indian Institute of Management Bangalore

21 June 2017 © PHI Learning Private Limited New Delhi 1


Chapter 6
Long-lived Assets

21 June 2017 © PHI Learning Private Limited New Delhi 2


Long-lived Assets in Perspective

■ What is a long-lived asset?


■ Property, plant and equipment
■ e.g. Land, buildings, equipment
■ Intangible assets
■ e.g. Brands, patents, copyrights
■ Natural resources
■ e.g. oil, natural gas, forests

21 June 2017 © PHI Learning Private Limited New Delhi 3


Property, Plant and Equipment
Transactions Illustrated

21 June 2017 © PHI Learning Private Limited New Delhi 4


Property, Plant and Equipment

■ Cost of acquisition
■ Purchase price
■ Directly attributable costs

21 June 2017 © PHI Learning Private Limited New Delhi 5


Property, Plant and Equipment,
continued

■ Suppose the costs associated with the acquisition


of a milling machine are as follows: list price Rs.
20,000, trade discount Rs. 1,000, non- refundable
import duty Rs. 4,000, refundable tax Rs. 5,000,
transit insurance Rs. 120, Freight Rs. 400,
Installation charges Rs. 1,200. What will be the
cost of acquisition of the machine?

21 June 2017 © PHI Learning Private Limited New Delhi 6


Accounting for Depreciation

■ What is depreciation?
■ Establishing the depreciable amount
■ Residual value
■ Estimating the useful life
Continued

21 June 2017 © PHI Learning Private Limited New Delhi 7


Accounting for Depreciation, continued

■ Choosing a depreciation method


■ Straight-line method
■ Accelerated methods
■ Written-down-value
■ Sum-of-the-years’-digits method
■ Production-units method

21 June 2017 © PHI Learning Private Limited New Delhi 8


Depreciation Schedule- Straight-line method

■ Assume that a bus costs Rs. 8,00,000


and is expected to realise Rs. 80,000 at
the end of its estimated useful life of 6
years.

21 June 2017 © PHI Learning Private Limited New Delhi 9


Depreciation Schedule- Accelerated Methods
Written- down- value- method

■ Assume that a bus costs Rs. 8,00,000


and is expected to realise Rs. 80,000 at
the end of its estimated useful life of 6
years.

21 June 2017 © PHI Learning Private Limited New Delhi 10


Depreciation Schedule- Accelerated Methods
Sum- of- the- years’- digits- method

■ Assume that a bus costs Rs. 8,00,000


and is expected to realise Rs. 80,000 at
the end of its estimated useful life of 6
years.

21 June 2017 © PHI Learning Private Limited New Delhi 11


Depreciation Schedule- Production- units
Method

■ Assume that a bus costs Rs. 8,00,000


and is expected to realise Rs. 80,000 at
the end of its estimated useful life of 6
years. Lets assume that the bus log
shows that its usage was 10,000 km in
the 1st year, 30,000 km in the 2nd year,
70,000 km in the 3rd year, 20,000km in
the 4th, 50,000km in the 5th year,
20,000km in the 6th year.

21 June 2017 © PHI Learning Private Limited New Delhi 12


Comparing the Depreciation Methods
Illustrated

21 June 2017 © PHI Learning Private Limited New Delhi 13


Comparing the Depreciation Methods
Illustrated

21 June 2017 © PHI Learning Private Limited New Delhi 14


Considerations in Selecting a
Depreciation Method

■ Matching
■ Simplicity
■ Record-keeping costs
■ Tax
■ Managerial motives
■ Legal requirements

21 June 2017 © PHI Learning Private Limited New Delhi 15

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