AFA 717 Lecture Notes - Lecture 14: Intangible Asset
Variable charge can be based on:
• service-hours (SH) method; or
• productive output (PO) or units-of-production method
Used when:
• there is physical capacity constraint; or
• asset’s utilizatio relialy easured varies sigifiatly eah period
Accelerated methods (decreasing charge)
• declining balance (DB) methods (diminishing-balance)
Used when
• Asset is subject to rapid obsolescence
• Asset will heavier use in earlier years
Nature and use of asset
Pattern of usage and consumption
Corporate reporting objectives
Regulated entity; covenants; employee benefits
Industry norms
To ensure comparability
Parent company preferences
Follow similar policies for meaningful consolidation
Simplified reporting
Use a simple method
Accounting information system costs
Amount of detailed info required
All depreciation or amortization methods require estimates be made for:
• Acquisition cost (shipping and installation costs etc)
• Useful life
• Residual value
Useful life – factors to consider:
• Expected use of asset
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