Tuesday, February 16th, 1999
Announcements: none

Lecture notes:

Machine Cost = $50,000

Estimated Life = 8 years

Estimated Residual Value = $12,000

Estimated Output = 50,000 units

Purchase Date = 1/1/98

Straight Line Depreciation

($50,000 - $12,000) / 8 years = $4,750 annual rate of Depreciation

12/31/01 Book Value

Cost	50,000
- Accumulated Depreciation	- 12,000
Book Value	$31,000

Date	Depreciation Expense		Book Value
1/1/98		50,000
12/31/98	12,500	37,500
12/31/99	9,375	28,125
12/31/00	7,031	21,094
12/31/01	5,273	15,821

1/1/02
The machine is sold for $28,000.

Straight Line Depreciation: loss = $3,000

Double Declining Balance: gain = $12,179

Straight Line Depreciation

Through 12/31/01:
Depreciation Expense =	19,000
Loss =	3,000
Total Cost to Own Machine =	$22,000

Double Declining Balance

Through 12/31/01:
Depreciation Expense =	34,179
Gain =	12,179
Total Cost to Own Machine =	$22,000

• Land
• Buildings
• Equipment
• Natural Resources
• Intangible Assets

• Purchase Price
• Commissions
• Lawyer's Fees
• Preparation Costs (clearing, grading, tearing down old buildings)
• Landscaping
• Local Assessments

• Purchase Price
• Freight
• Insurance
• Installation Costs
• Special Foundations
• Test Runs

Intangible Assets:

• Patent
• Copyright
• Trademark
• Franchise
• Goodwill (overall value of business above & beyond its assets)

Amortize (Depreciation of intangible assets) "the cost" over the assets useful life, up to a maximum of 40 years.

Group / Basket Purchase

Item	Market Value
Land	80,000
Building	70,000
Equipment	50,000
	$200,000

You purchase all 3 items at a cost of $190,000.

(Cost - Salvage Value) / Estimated Output = Depletion Expense per Unit of Output

Chapter 8 Example:

The NL Corporation reported $100,000 of net credit sales during 1997. Past history suggests that 1.5 % of net credit sales will not be collected.

$100,000 x 1.5% = $1,500

Bad Debt Expense		1,500
	Allowance for Uncollectable Accounts		1,500
	(contra-asset account)

Balance Sheet Presentation

Accounts Receivable

Less: Allowances for Uncollectable Accounts

Net Accounts Receivable (what we expect to collect)