ECON 2 Lecture Notes - Lecture 3: Book Value, Retained Earnings, List Of Fables Characters
Document Summary
Depreciation: 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 assets. Depletion: describe the reduction in the cost of mineral resources. Write off long-lived assets over a number of period. Depreciable base for assets: original cost, residual value = salvage value: estimated amount that a company will receive when it sells the asset or removes it from service. Estimation of service lives: often differs from physical life, retire assets for two reasons, physical factors, wear and tear, decay, economic factors (obsolescence) Inadequacy: demands changed, supersession, more efficient asset, obsolescence, catchall for situations not involving the other two. Component depreciation: requires each part of an item of ppe to be depreciated separately. Does not involve a current cash outflow. Depreciation in no way funds for the replacement of assets. Usually rates are made with past experience with similar assets.
