slides depr. & prov. uncoll. accounts
TRANSCRIPT
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8/18/2019 Slides Depr. & Prov. Uncoll. Accounts
1/19
Joaquín Uríbarri
Depreciation
MATCHINGPRINCIPLE
DEPRECIATION
The cost of a long-lived asset mst !eallocated as an e"#ense in the same#e$iod that $evenes a$e gene$ated !%its se&
CONCEPT' The #$ocess of allocatingthe cost of !ildings and e(i#mentove$ thei$ #$odctive life
Land is the onl% long-lived assetthat is not de#$eciated' it isconside$ed to have an nlimitedlife
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8/18/2019 Slides Depr. & Prov. Uncoll. Accounts
2/19
Joaquín Uríbarri
What is NOT depreciation
It is not a process of determining the current MARKET VALUE
of an asset
it is not a process used as a !A"# $E%ERAT&R' a(though as an e)pense it *i(( ha+e an indirect impact, the reduction
of net income *i(( reduce pa-ment in ta)es and di+idends
It is not a process of generating .retained funds/ in order to
rep(ace the asset at the end of its usefu( (ife
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8/18/2019 Slides Depr. & Prov. Uncoll. Accounts
3/19
Joaquín Uríbarri
Depreciation: the accounting process
A))ET)
E(i#ment
01'111 Acquisitionor production cost
Accmlatedde#$eciation
!ontra2account
31'111
E*PEN)E)
De#$eciation e"#ense
31'111
Net !oo+ vale
Cost less accmlated de#$eciation
01'111 4 31'111 5 61'111
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8/18/2019 Slides Depr. & Prov. Uncoll. Accounts
4/19
Joaquín Uríbarri
Depreciation methods
Need to +no,
Ac(isition o$ #$odction cost
sefl life .estimation/
Residal .salvage/ vale.estimation/
ALTERNATI0E METHOD)
)t$aight line
nits of #$odction
Declining !alance
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8/18/2019 Slides Depr. & Prov. Uncoll. Accounts
5/19
Joaquín Uríbarri
"traight2Line Method
!ost 2 Residua( Va(ueUsefu( Life in 7ears
8epreciationE)pense per 7ear
5
At the beginning of the -ear' "outh*est purchased groundequipment for 9:;'011 cash The equipment has an estimatedusefu( (ife of < -ears and an estimated residua( +a(ue of 9;'011
De#$eciation
E"#ense #e$ 1ea$ 2
De#$eciation
E"#ense #e$ 1ea$ 2 3456555
3746855 - 346855
9 %ea$s
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8/18/2019 Slides Depr. & Prov. Uncoll. Accounts
6/19
Joaquín Uríbarri
De#$eciation Accmlated Accmlated -nde#$eciated
E"#ense De#$eciation De#$eciation :alance
1ea$ .de!it/ .c$edit/ :alance .!oo+ vale/
7468553
; 4565553 4565553 4565553
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8/18/2019 Slides Depr. & Prov. Uncoll. Accounts
7/19
Joaquín Uríbarri
Units2of2=roduction Method
De#$eciation Rate
2 Cost - Residal 0aleLife in nits of P$odction
)te# ;'
)te# 4'
De#$eciation E"#ense
2 De#$eciation Rate
=
Nm!e$ of
nits P$odcedfo$ the 1ea$
At the beginning of the -ear' "outh*est purchased ground
equipment for 9:;'011 cash The equipment has a 311'111mi(e usefu( (ife and an estimated residua( +a(ue of 9;'011
If the equipment is used
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8/18/2019 Slides Depr. & Prov. Uncoll. Accounts
8/19
Joaquín Uríbarri
Units2of2=roduction Method
3746855 - 346855;556555 miles
2 3&75 #e$ mileDe#$eciation Rate
2
)te# ;'
)te# 4'
3&75 #e$ mile = 956555 miles 23;>6555
De#$eciation E"#ense
2
Residal 0ale
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8/18/2019 Slides Depr. & Prov. Uncoll. Accounts
9/19
Joaquín Uríbarri
Acquisition and 8ep(etion of %atura(Resources
E"am#les' oil6 coal6 goldE"am#les' oil6 coal6 gold
E)tracted fromthe natura(
en+ironment
A noncurrentasset presented
at cost (essaccumu(ated
dep(etion
Tota( cost of asset is the cost
of acquisition' e)p(oration'
and de+e(opment
Tota( cost isa((ocated o+er
periods benefitedb- means of
dep(etion
De#letion is li+e nits-of-#$odction de#$eciation&
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8/18/2019 Slides Depr. & Prov. Uncoll. Accounts
10/19
Joaquín Uríbarri
The nit de#letion $ate is calclated as follo,s'
Estimated Reco+erab(e Units
Acquisition and Residua(8e+e(opment !ost Va(ue ?
De#letioncost
Invento$%fo$ sale nsold
Invento$%
Cost of goods sold
De#letion cost fo$ a #e$iod is'
NIT DEPLETION
RATE
NM:ER O@ NIT)
E*TRACTED IN PERIOD?
Acquisition and 8ep(etion of %atura(Resources
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8/18/2019 Slides Depr. & Prov. Uncoll. Accounts
11/19
Joaquín Uríbarri
Acce(erated 8epreciation
De#$eciationDe#$eciation Re#ai$ Re#ai$
E"#enseE"#ense E"#enseE"#enseEa$l% 1ea$sEa$l% 1ea$s HighHigh Lo,Lo,
Late$ 1ea$sLate$ 1ea$s Lo,Lo, HighHigh
Accele$ated de#$eciation matches highe$de#$eciation e"#ense ,ith highe$ $evenesin the ea$l% %ea$s of an assets sefl life
,hen the asset is mo$e efficient&
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8/18/2019 Slides Depr. & Prov. Uncoll. Accounts
12/19
Joaquín Uríbarri
8ec(ining2@a(ance Method
Annal
De#$eciatione"#ense
Net
:oo+0ale Bsefl Life in 1ea$s 4
2 =
!ost 4 Accumu(ated 8epreciation
8ec(ining ba(ance rateof ; is doub(e2dec(ining2
ba(ance 88@B rate
Annal com#tation igno$es $esidal vale&Annal com#tation igno$es $esidal vale&
At the beginning of the -ear' "outh*est purchased equipmentfor 9:;'011 cash The equipment has an estimated usefu((ife of < -ears and an estimated residua( +a(ue of 9;'011
!a(cu(ate the depreciation e)pense for the first t*o -ears
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8/18/2019 Slides Depr. & Prov. Uncoll. Accounts
13/19
Joaquín Uríbarri
AnnalDe#$eciation
e"#ense
Net:oo+0ale
Bsefl Life in 1ea$s 4
2 =
B 3746855 = 9 %ea$s 4
2 3
8ec(ining2@a(ance Method
1ea$ ; De#$eciation'
1ea$ 4 De#$eciation'
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8/18/2019 Slides Depr. & Prov. Uncoll. Accounts
14/19
Joaquín Uríbarri
De#$eciation Accmlated -nde#$eciated
E"#ense De#$eciation :alance
1ea$ .de!it/ :alance .!oo+ vale/
7468553
; >C 886887 76C
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8/18/2019 Slides Depr. & Prov. Uncoll. Accounts
15/19
Joaquín Uríbarri
8epreciation e)pense is (imited to the amount thatreduces booC +a(ue to the estimated residua( +a(ue
De#$eciation Accmlated -nde#$eciated
E"#ense De#$eciation :alance
1ea$ .de!it/ :alance .!oo+ vale/
7468553
; >C 886887 76C
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8/18/2019 Slides Depr. & Prov. Uncoll. Accounts
16/19
Joaquín Uríbarri
Internationa( =erspecti+eDIR"Measurement @asis for =ropert-' =(ant
and Equipment
IR" permit companies to+a(ue propert-' p(ant' and
equipment at historica( costor to re+a(ue them to theirfair +a(ue as of the ba(ance
sheet date
Under $AA=' re+a(uation of
propert-' p(ant' andequipment to fair +a(ue is
prohibited
U" $AA= and IR" differ *ith respect to the measurementbasis for propert-' p(ant and equipment on the ba(ance sheet
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8/18/2019 Slides Depr. & Prov. Uncoll. Accounts
17/19
Joaquín Uríbarri
Provision for uncollectible accounts (i)
MATCHINGPRINCIPLE
Reco$ding of !ad de!t e"#ense in thesame #e$iod in ,hich the sales a$e made
PRO0I)ION
E)TIMATION of the e"#ected amont of!ad de!ts& e ,ill not +no, it fo$ s$e
ntil the follo,ing #e$iod
TO )TEP)
;& Recogniing the estimation of !ad de!t at the endof the #e$iod&
4& Doing the adFstment .,$iting off/ in the follo,ing#e$iod6 ,hen ,e +no, the $eal amont of !ad de!t
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8/18/2019 Slides Depr. & Prov. Uncoll. Accounts
18/19
Joaquín Uríbarri
Provision for uncollectible accounts (ii)
)TEP ONE
Acconts$eceiva!le
F1'111
P$ovision fo$ do!tfl acconts
6'111
!ontra2account
A))ET)
Estimation of the bad debt
*e maCe at the end of theperiod, 0G of the accountsrecei+ab(e in this e)amp(e
E*PEN)E)
6'111
:ad de!te"#ense Net
AccontsReceiva!le
2
G$oss acconts
$eceiva!le
- P$ovision fo$ do!tfl acconts
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8/18/2019 Slides Depr. & Prov. Uncoll. Accounts
19/19
Joaquín Uríbarri
Provision for uncollectible accounts (iii)
)TEP TO
Acconts$eceiva!le
F1'111
P$ovision fo$ Do!tfl acconts
6'111
A))ET)
Th$oghot the follo,ing %ea$6 ,hen ,e havece$taint% that the cstome$ ,ill not #a%6 ,e$eco$d the ,$ite-off of the !ad de!t
6'111 6'111 The$e isNO E@@ECTon theINCOME)TATEMENT