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Chapter 11 - Depreciation, impairments, and depletion. After completing this chapter you should be able to: Explain the concept of depreciation, identify the factors involved in the depreciation process, compare activity, straight-line, and decreasing-charge methods of depreciation, explain special depreciation methods. | PREVIEW OF CHAPTER 11 Intermediate Accounting 16th Edition Kieso ● Weygandt ● Warfield Understand depreciation concepts and methods of depreciation. Explain special depreciation methods and other depreciation issues. Explain the accounting issues related to asset impairment. LEARNING OBJECTIVES Explain the accounting procedures for depletion of natural resources. Explain how to report and analyze property, plant, equipment, and natural resources. After studying this chapter, you should be able to: Depreciation, Impairments, and Depletion 11 LO 1 Allocating costs of long-lived assets: Fixed assets = Depreciation expense Intangibles = Amortization expense Natural resources = Depletion expense Depreciation is the accounting process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset. DEPRECIATION—METHOD OF COST ALLOCATION LO 1 Factors Involved in the Depreciation Process Three basic questions: What depreciable base is to be used? What is the asset’s useful life? What method of cost apportionment is best for this asset? METHOD OF COST ALLOCATION LO 1 Depreciable Base for the Asset Factors Involved in the Depreciation Process METHOD OF COST ALLOCATION ILLUSTRATION 11-1 Computation of Depreciation Base LO 1 Estimation of Service Lives Service life often differs from physical life. Companies retire assets for two reasons: Physical factors (casualty or expiration of physical life). Economic factors (inadequacy, supersession, and obsolescence). Factors Involved in the Depreciation Process METHOD OF COST ALLOCATION LO 1 Some companies try to imply that depreciation is not a cost. For example, in their press releases they will often make a bigger deal over earnings before interest, taxes, depreciation, and amortization (often referred to as EBITDA) than net income under GAAP. They like it because it “dresses up” their earnings numbers. Some on Wall Street buy this hype because | PREVIEW OF CHAPTER 11 Intermediate Accounting 16th Edition Kieso ● Weygandt ● Warfield Understand depreciation concepts and methods of depreciation. Explain special depreciation methods and other depreciation issues. Explain the accounting issues related to asset impairment. LEARNING OBJECTIVES Explain the accounting procedures for depletion of natural resources. Explain how to report and analyze property, plant, equipment, and natural resources. After studying this chapter, you should be able to: Depreciation, Impairments, and Depletion 11 LO 1 Allocating costs of long-lived assets: Fixed assets = Depreciation expense Intangibles = Amortization expense Natural resources = Depletion expense Depreciation is the accounting process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset. DEPRECIATION—METHOD OF COST ALLOCATION LO 1 Factors Involved in the Depreciation Process Three basic .
