COMMERCE 1AA3 Chapter Notes - Chapter 7: Accelerated Depreciation, Ddb Worldwide, Capital Asset

• School: McMaster University
• Department: Commerce
• Course: COMMERCE 1AA3
• Professor: Emad Mohammad

Document Summary

Long lived assets- used in the business but not held for sale. Tangible long lived assets- have physical form such as buildings and equipment. When tangible long-lived assets are used the expense is referred to as depreciation expense, when intangible long-lived assets with exception of goodwill are used the expense is referred to as amortization. Expenditures relating to long lived assets can be classified as: Capital expenditure: an e(cid:454)pe(cid:374)ditu(cid:396)e that i(cid:374)(cid:272)(cid:396)eases the asset"s p(cid:396)odu(cid:272)ti(cid:448)it(cid:455) o(cid:396) to e(cid:454)te(cid:374)d its useful life. Immediate expenditure: costs that merely maintain the asset or restore it to working order. Expenditure will be realized in future, will not be used up in this period--- debit an asset. E(cid:454)pe(cid:374)ditu(cid:396)e"s (cid:271)e(cid:374)efit is (cid:396)ealized i(cid:374) (cid:272)u(cid:396)(cid:396)e(cid:374)t pe(cid:396)iod---- debit expense. Expenditure provides no additional benefit--- debit a loss. Depreciation- the process of allocating a long-li(cid:448)ed asset"s (cid:272)ost to e(cid:454)pe(cid:374)se o(cid:448)e(cid:396) the asset"s useful life due to physical wear and tear and/or obsolescence.