Accounting PrinciplesSecond Canadian Edition课件.ppt

If wear and tear or obsolescence indicate that annual amortization is inadequate or excessive, a change in the periodic amount should be made. When a change is made, 1. there is no correction of previously recorded amortization expense and 2. amortization expense for current and future years is revised. Annual amortization expense = (Net Book Value - Revised Residual Value)/Remaining Useful Life REVISING PERIODIC AMORTIZATION ILLUSTRATION 10-18 REVISED AMORTIZATION COMPUTATION Kim’s Florists decides on January 1, 2005 to extend the useful life of the truck by one additional year because of its good condition. The estimated residual value is expected to drop from $2,000 to $700. The company has used the straight-line method to amortize the asset to date, and the net book value is $11,200 ($25,000 - $13,800). The new annual amortization is $3,500, as shown below: Book value, 1/1/02 $11,200 Less: Salvage value 700 Amortizable cost $10,500 Remaining useful life 3 years (2005-2007) Revised annual amortization ($10,500 ÷ 3) $ 3,500 ÷ Ordinary repairs are expenditures to maintain the operating efficiency and expected productive life of the capital asset. They are debited to Repairs Expense as incurred and are often referred to as revenue expenditures. Additions and improvements are costs incurred to increase the operating efficiency, productive capacity, or expected useful life of the capital asset. 1. Expenditures are usually material in amount and occur infrequently during the period of ownership. 2. Since additions and improvements increase the company’s investment in productive facilities, they are debits to the capital asset affected, and are referred to as capital expenditures. EXPENDITURES DURING USEFUL LIFE Capital assets may be disposed of by a) retirement b) sale, or c) exchange At date of disposal: Determi