Contents
Chapter 1................................................................................................................................................2
Chapter 1-8 cashflow chapter................................................................................................................4
Chapter 9................................................................................................................................................5
chapter 10..............................................................................................................................................6
Formulas.................................................................................................................................................9
E10-17..................................................................................................................................................11
E10-19.............................................................................................................................................11
E10-17.............................................................................................................................................12
, Chapter 1
Fixed asset turnover ratio:
net sales
assets ¿
average net ¿
The fixed assets turnover is a ratio that indicates how well a business uses fixed assets to generate
sales.
Acquisition cost includes the purchase price and all expenditures needed to prepare the asset for its
intended use. This does not include financing charges, such as interest, associated with the purchase.
When we say that the expenditures are capitalized when they are recorded as an asset.
Depreciation concepts:
Depreciation is a process of cost allocation, not of determining market value
The remaining balance sheet amount probably does not represent the asset’s current market
value
Straight line depreciation:
1
( cost−residual value ) ×
useful life
When using straight line depreciation, depreciation is constant.
Units of production method:
cost−residual value
×actual production
total production
Double-declining balance:
2
( cost−accumulated depreciation ) ×
useful life
Note, ignore residual value
Land is not depreciated!
Patents have a lifespan of 20 years
Journal entry depreciation example:
Chapter 1................................................................................................................................................2
Chapter 1-8 cashflow chapter................................................................................................................4
Chapter 9................................................................................................................................................5
chapter 10..............................................................................................................................................6
Formulas.................................................................................................................................................9
E10-17..................................................................................................................................................11
E10-19.............................................................................................................................................11
E10-17.............................................................................................................................................12
, Chapter 1
Fixed asset turnover ratio:
net sales
assets ¿
average net ¿
The fixed assets turnover is a ratio that indicates how well a business uses fixed assets to generate
sales.
Acquisition cost includes the purchase price and all expenditures needed to prepare the asset for its
intended use. This does not include financing charges, such as interest, associated with the purchase.
When we say that the expenditures are capitalized when they are recorded as an asset.
Depreciation concepts:
Depreciation is a process of cost allocation, not of determining market value
The remaining balance sheet amount probably does not represent the asset’s current market
value
Straight line depreciation:
1
( cost−residual value ) ×
useful life
When using straight line depreciation, depreciation is constant.
Units of production method:
cost−residual value
×actual production
total production
Double-declining balance:
2
( cost−accumulated depreciation ) ×
useful life
Note, ignore residual value
Land is not depreciated!
Patents have a lifespan of 20 years
Journal entry depreciation example:
