Cost Allocation

1
Cost Allocation

• Service life
• Allocation base ( residual value)
• Allocation method

2
Depreciation

• Time based vs. activity based
• Time based
• Straight line-S/L
• Sum of the years digits-SYD
• Declining balance-DDB
• Activity based
• Units of production

3
Depletion

• Cost allocation for natural resources
• Units of production for books
• Percentage depletion for taxes
• Traditionally applied directly to asset account

4
Amortization

• Cost allocation for intangibles
• Excludes goodwill intangibles with indefinite
  lives
• S/L method is used
• Traditionally applied directly to asset account

5
Partial Periods

• Half-year convention

6
Changes in Estimates

• Revision of estimated useful life
• Reflect in current F/S
• Disclose in footnotes

7
Change in Depr. Method

• Separately reported item cumulative effect on
  prior years inc.
• Pro forma prior years impact if material
• Disclose in footnotes

8
Error Correction-Material

• Restatement
• Adjust R/E Stmt. of S/E
• Disclose in footnotes

9
Goodwill (SFAS 142) Impairment

• G/W must be tested annually for impairment
• Impairment-operational assets G/W
• Triggering event
• Recognition requirement
• Measurement

10
Maintenance or Betterment

• Addition or betterment, if
• Increases output
• Improves quality
• Extends useful life
• Reduces operating cost
• Expense if maintenance
• Capitalize if betterment

11
Additions, Improvements Rearrangements

• Additions capitalize
• Improvements
• Substitution
• Capitalization
• Reduction of accumulated depreciation
• Rearrangements capitalize if material
• Dispositions results in gain or loss