Chapter 7: Fixed Assets

1
Chapter 7 Fixed Assets

• Assets used for a number of years in the
  operation of a business are called fixed assets

2
Accounting Fixed Assets

• Accounting uses fixed assets information
• to show costs,
• to determine an asset's reduction in value due to
  usage, and
• to dispose of assets.

3
Asset Disposition

• Asset disposition occurs when an asset is removed
  from use in the business.

4
Asset Depreciation

• As assets wear out with the passing of time, they
  decrease in value.
• Therefore, during their useful life, they must be
  systematically depreciated for proper accounting
  and tax-reporting purposes.
• The amount of the depreciation is recorded as
  adjusting entries at the end of the month or year

5
Computerized Fixed Asset System

• maintains and stores relevant data for each asset
  
• When new assets are acquired, they are added to
  the system.
• Likewise, they are deleted from the system at the
  time of disposition.

6
Four Methods of Calculating Depreciation

• Straight-Line Method
• the same amount of depreciation is recorded for
  each accounting period over the useful life of
  the asset.
• Annual Depreciation (Cost of Asset-Salvage
  Value) / Useful Life
• Salvage value the remaining value of an asset
  after the end of its useful life

7
Four Methods of Calculating DepreciationContinued

• 2. Double Declining-Balance Method
• Annual Depreciation (Cost of Asset/ Useful Life)
  x 2
• salvage value is not considered, but an asset
  should not be depreciated below the estimated
  salvage value.

8
Four Methods of Calculating DepreciationContinued

• Sum-of-the-Years-Digits Method
• Nominator the number of remaining years of
  useful life
• Denominator Sum of the digits of the years of
  the asset useful life. Example, if the asset's
  useful life is five years, the sum of the years
  digits used in the denominator would be 15 (12
  3 4 5).
• Annual Depreciation (Nominator/Denominator) x
  (Cost of Asset-Salvage Value)

9
Four Methods of Calculating DepreciationContinued

• Tax Depreciation ACRS and MACRS
• Purpose of tax depreciation more depreciation
  expense, less income to be taxed
• ACRS is used for asset purchased up to 1986
• MACRS is used for asset purchased after 1986

10
Four Methods of Calculating DepreciationContinued

• Tax Depreciation ACRS and MACRSContinued
• Straight Line Depreciation is used
• For this class purpose, only periods of 5 and7
  years can be used when determining the useful
  life of an asset
• Any salvage value of an asset is disregarded,
• The asset is assumed to be placed into service in
  the middle of the year.

11
Classes of MACRS Assets

• 5-year This class includes automobiles,trucks,
  computers, office equipment,and technological
  equipment.
• 7-year This class includes office furniture and
  fixtures, commercial aircraft, and most
  manufacturing machinery.

12
Maintain Fixed Assets Data

• Is a process of adding, changing, and deleting
  assets
• To maintain click Acct. tool bar

13
(No Transcript)
14
Displaying Fixed Asset Reports
15
(No Transcript)
16
Depreciation Adjusting Entries

• The adjusting entry is Debit Depreciation Expense
  and Credit Accumulated Depreciation
• The adjusting entries is typically done monthly

17
Depreciation Schedules

• Provides annual depreciation for each year of the
  assets life
• See Figure 7.5 Page 294

18
Generated automatically by the system
Go to Option menu and Click Depreciation
Adjusting entries
Click Post to post entry to General Journal
19
(No Transcript)
20
Quick Note

• DEPRECIATION METHOD
• DDB DOUBLE DECLINING BALANCE
• SL STRAIGHT LINE
• SYD SUM OF THE YEAR DIGITS
• MARCS MACRS