Principles of Accounting: Chapter Ten

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Chapter 10 expands upon the basic principles of accounting for property, plant, and equipment that have been introduced throughout earlier chapters. The chapter begins by elaborating on the concepts that govern the types of costs that are properly included with PP&E. Special situations, such as the lump-sum purchase of a group of assets is described. This is followed by a general discussion of service life, and other concepts and terminology that are essential to understanding the process of allocating the cost of productive assets to many time periods.

The conceptual discussion provides a foundation for the ensuing discussion that looks at the specifics of both straight-line and accelerated depreciation approaches. Coverage includes fractional period depreciation and utilization of spreadsheet routines for calculating depreciation. The chapter also covers the less widely applicable units-of-output depreciation approach. The chapter provides brief coverage to establish an awareness of unique facets of cost allocation that uniquely applicable under tax codes, and closes with general commentary on accounting for equipment leases.

Exercises

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Problems
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Multiple Choice
Objectives
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Fill in the Blanks: Chapter Ten

1. A ____________ lump-sum purchase occurs when a package of assets are acquired for a single purchase price amount.

2. The cost/benefit theme is consistent with the concept of ____________materiality, which refers to the significance of a particular item or transaction.

3. A lease is an arrangement that allows one party, the ____________lessee, to use the assets of another party, the ____________lessor, for a stated period of time.

4. Many lease agreements provide a period of use nearly equal to the entire service life of the leased assets. Such agreements frequently contain a provision for the lessee to acquire the property at a bargain purchase price, and are called ____________capital leases.

5. Another name for economic or useful life is ____________service life.

6. In determining an asset's useful life, consideration must be given to three factors: ____________physical deterioration, ____________obsolescence, and ____________inadequacy.

7. One of the most popular depreciation methods is the ____________straight-line method.

8. Cost minus residual value is known as ____________depreciable base , whereas cost minus accumulated depreciation is known as ____________book value.

9. An accelerated depreciation method which involves applying a fixed depreciation rate to the remaining book value of an asset is known as the ____________declining balance method.

10. Tax laws permit asset cost to be charged against specific years via use of the ____________modified accelerated cost recovery system.

11. A common fallacy about accumulated depreciation is that the account contains ____________cash .