AFA 717 Lecture 13: 17 - Copy
• Fractional-Year – required when acquisitions and disposals do not coincide with the fiscal year
end
• Exact calculations approach
• Prorated based on number of days available for service; i.e. 112/365 days; or
2/12 months
• Service hours and productive output automatically adjust
• Accounting policy convention approaches
• Half-year; Full first year; and Final year
• For interim reporting – applied on quarterly basis rather than year
• Half-year convention – a half year’s depreiatio or aortizatio is harged o all assets
acquired or disposed during the year
• Amount = rate X average of opening and closing balances
• Full-first-year convention – a full year’s depreiatio or aortizatio is harged for all assets
that existed at the year end
• No depreciation or amortization taken in the year of disposal
• Final year convention – annual depreciation or amortization is determined solely on basis of the
asset balance at beginning of year.
• Full year depreciation in year of disposal
• No depreciation in year of addition
• Land is not at risk due to obsolescence nor does it suffer from wear and tear
• Therefore, land is not depreciated
• Decommissioning costs related to land - the amount of the obligation is added to a land
improvements account, referred to as a bump-up
• Land improvements account is depreciated
• Depreciation would occur over the period of benefit from the costs of the obligation
• Depreciation or amortization is based on a group of small assets, rather than on individual assets
– depreiatio syste
• Appropriate where assets have short lives and no significant components
• Examples – tools, dyes, patterns
• No gains or losses recorded on routine disposals
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Document Summary
Fractional-year required when acquisitions and disposals do not coincide with the fiscal year end. Exact calculations approach: prorated based on number of days available for service; i. e. 112/365 days; or. Service hours and productive output automatically adjust: accounting policy convention approaches, half-year; full first year; and final year. Full-first-year convention a full year"s depre(cid:272)iatio(cid:374) or a(cid:373)ortizatio(cid:374) is (cid:272)harged for all assets that existed at the year end: no depreciation or amortization taken in the year of disposal. Final year convention annual depreciation or amortization is determined solely on basis of the asset balance at beginning of year. Full year depreciation in year of disposal: no depreciation in year of addition, decommissioning costs related to land - the amount of the obligation is added to a land. Land is not at risk due to obsolescence nor does it suffer from wear and tear. Therefore, land is not depreciated improvements account, referred to as a bump-up.
