Depreciation – Important Points

Choosing a Useful Life– In isolation, the shorter the useful life, the higher the depreciation expense.  A company’s management may attempt to show higher earnings in the near-term by increasing the useful life estimates for its long lived assets. Estimating Salvage...

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Impact of Depreciation Methods on Financial Statements

The table below summarizes the early year impacts on selected financial reporting items by choosing the straight-line method versus an accelerated depreciation method. ITEM IMPACTED STRAIGHT-LINE ACCELERATED Earnings, Equity, Profit Margins Higher, as depreciation...

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Depreciation Methods for Property, Plant, and Equipment (PPE)

Depreciation is defined as the ‘allocation of the depreciable amount of an asset over its estimated life’. According to the matching concept, revenues should be matched with expenses in order to determine the accounting profit. The cost of the asset purchased should...

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Financial Reporting of Intangible Assets

Intangible assets are those assets that have no physical substance such as patents, trademarks, franchises, and copyrights. Intangible assets can have finite lives or indefinite lives. For assets with finite lives, the cost is amortized over the life of the asset. For...

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Capitalizing Vs. Expensing Costs

Management typically has some discretion in determining if the cost of an item should be capitalized to the balance sheet and depreciated (or amortized if it is an intangible asset) to the income statement over time or if the cost of the item should be fully expensed...

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Long-lived Assets – Introduction

Long-lived assets refer to the long term assets that include property, plant and equipment (PPE), natural resources, intangible assets, and financial assets. This section largely focuses on property, plant and equipment (PPE), but there will be some discussion of...

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Disclosures Relating to Inventories

Under US GAAP and IFRS, companies are required to make the following disclosures about inventory. Accounting policies for measuring inventories, including cost formulas used Total carrying amount of inventories Carrying amount of inventories carried at fair value less...

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Inventory at Net Realizable Value

International and U.S. accounting standards require companies to carry inventory on the balance sheet at the lower of cost or market (LCM). With LCM an unrealized loss caused by a change that materially disconnects the in the fair market value of current inventory...

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