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Fixed Assets and


Intangible Assets

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After studying this chapter, you should
be able to:
1. Define, classify, and account for the
cost of fixed assets.
2. Compute depreciation, using the
following methods: straight-line
method, units-of-production method,
and double-declining-balance
method.
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After studying this chapter, you should
be able to:
3. Journalize entries for the disposal of
fixed assets.
4. Compute depletion and journalize the
entry for depletion.
5. Describe the accounting for
intangible assets, such as patents,
copyrights, and goodwill.
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After studying this chapter, you should
be able to:
6. Describe how depreciation expense is
reported in an income statement, and
prepare a balance sheet that includes
fixed assets and intangible assets.

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10-1
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Objective 1
Define, classify,
and account for the
cost of fixed assets.

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Nature of Fixed Assets 10-1


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Fixed assets are long-term or


relatively permanent assets. They are
tangible assets because they exist
physically. They are owned and used
by the business and are not offered for
sale as part of normal operations.

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Fixed Assets as a Percent 10-1


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of Total Assets—Selected
Companies
Fixed Assets as a Percent
of Total Assets
Service Firms:
Pembangunan Jaya Ancol Tbk. (Recreation Park) 35.74%
Bayu Buana Tbk. (Travel Agent) 8.65%
Bank Rakyat Indonesia Tbk. (Bank) 1.18%

Manufacturing Firms:
Kimia Farma Tbk. (Pharmaceuticals) 78.67%
Sepatu Bata Tbk. (Shoes Factory) 25.13%
Indofood Sukses Makmur Tbk. (Food and Beverage) 39.97%

Merchandising Firms:
Alfa Retailindo Tbk. 44.07%
Hero Supermarket Tbk. 34.25%
Metro Supermarket Tbk. 22.72%

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Classifying Costs 10-1


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Is the purchased
item long-lived?
yes no

Is the asset used in a Expense


productive purpose?

yes no

Fixed Assets Investment property


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Cost of Acquiring Fixed Assets 10-1


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LAND
 Purchase price
 Sales taxes
 Permits from government agencies
 Broker’s commissions
 Title fees
 Surveying fees
 Delinquent real estate taxes
 Razing or removing unwanted
buildings, less any salvage
 Grading and leveling
 Paving a public street bordering the
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land
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Cost of Acquiring Fixed Assets 10-1


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BUILDING
 Architects’ fees
 Engineers’ fees
 Insurance costs incurred during construction
 Interest on money borrowed to finance
construction
 Walkways to and around the building
 Sales taxes
 Repairs (purchase of existing building)
 Reconditioning (purchase of existing
building)
 Modifying for use 10
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 Permits from government agencies
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Cost of Acquiring Fixed Assets 10-1


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MACHINERY AND  Modification for use
EQUIPMENT  Testing for use
 Sales taxes  Permits from government
 Freight agencies
 Installation LAND
 Repairs (purchase of used IMPROVEMENT
equipment)
 Trees and shrubs
 Reconditioning (purchase
 Fences
of used equipment)
 Outdoor lighting
 Insurance while in transit
 Paved parking areas
 Assembly
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10-1
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Cost of Acquiring Fixed Assets Excludes:
 Vandalism
 Mistakes in installation
 Uninsured theft
 Damage during unpacking
and installing
 Fines for not obtaining proper
permits from government
agencies
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Capital and Revenue Expenditures 10-1


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Expenditures that benefit only the


current period are called revenue
expenditures. Expenditures that
improve the asset or extend its useful
life are capital expenditures.

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10-1
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REVENUE CAPITAL
EXPENDITURES EXPENDITURES
Normal and 1) Additions
ordinary repairs 2) Improvements
and maintenance 3) Extraordinary
repairs

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Ordinary Maintenance and Repairs 10-1


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On April 9, the firm paid Rp 300,000
for a tune-up of a delivery truck.

Apr. 9 Repairs and Maintenance Exp. 300 000


Cash 300 000

This is a revenue expenditure

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Asset Improvements 10-1


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On May 4, a Rp 5,500,000 hydraulic lift was
installed on the delivery truck to allow for easier
and quicker loading of heavy cargo.
May 4 Delivery Truck 5 500 000
Cash 5 500 000

This is a capital expenditure

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Extraordinary Repairs 10-1


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The engine of a forklift that is near the end of its
useful life is overhauled at a cost of Rp 4,500,000
which extends its useful life eight years. Work on
the forklift was completed on Oct. 14.
Oct. 14 Accum. Depreciation—Forklift 4 500 000
Cash 4 500 000

This is a capital expenditure


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Capital or Revenue Expenditure 10-1


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10-1

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Example Exercise 10-1

On June 18 GTS Co. paid Rp 1,200,000 to upgrade a


hydraulic lift and Rp 45,000 for an oil change for one
of its delivery trucks. Journalize the entries for the
hydraulic lift upgrade and oil change expenditures.

Follow My Example 10-1


June 18 Delivery Truck 1,200,000
Cash 1,200,000
18 Repairs and Maintenance Exp. 45,000
Cash 45,000
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For Practice: PE 10-1A, PE 10-1B
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Leasing Fixed Assets 10-1


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A capital lease is accounted


for as if the lessee has, in fact,
purchased the asset. The
asset is then amortized over
the life of the capital lease.

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Leasing Fixed Assets 10-1


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A lease that is not
classified as a capital
lease for accounting
purposes is classified as
an operating lease (an
operating leases is treated
as an expense).
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10-2
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Objective 2
Compute depreciation using the
following methods: straight-line
method, units-of-production method,
double-declining-balance method.

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Accounting for Depreciation 10-2


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Over time, fixed assets such as


equipment, buildings, and land
improvements lose their ability to
provide services. The periodic
transfer of the cost of fixed assets to
expense is called depreciation.

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Physical and Functional 10-2


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Depreciation

Physical depreciation occurs from wear


and tear while in use and from the
action of the weather Functional
depreciation occurs when a fixed asset
is no longer able to provide services at
the level for which it was intended.

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Factors in Computing Depreciation 10-2


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The three factors in determining the


amount of depreciation expense to be
recognized each period are: (a) the fixed
asset’s initial cost, (b) its expected useful
life, and (c) its estimated value at the end
of the useful life.

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Residual Value 10-2


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The fixed asset’s estimated value at
the end of its useful life is called the
residual value, scrap value, salvage
value, or trade-in value. A fixed
asset’s residual value and its expected
useful life must be estimated at the
time the asset is placed in service.
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10-2
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10-2
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Exhibit 5: Use of Depreciation
Methods
7% 3%
2%
Straight-line
Units-of-production
Double-declining-
balance
Other
88%

Source: Accounting Trends & Techniques, 59th ed., American


Institute of Certified Public Accountants, New York, 2005. 28
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Straight-Line Method 10-2


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The straight-line method provides
for the same amount of
depreciation expense for each year
of the asset’s useful life.
Cost – estimated residual value
Annual depreciation =
Estimated life

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10-2
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A depreciable asset cost Rp 24,000,000. Its
estimated residual value is Rp 2,000,000
and its estimated life is 5 years.

Cost – estimated residual value


Annual depreciation =
Estimated life

Annual depreciation = Rp 24,000,000 – Rp 2,000,000


5 years

Annual depreciation = Rp 4,400,000


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10-2
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The straight-line method is
widely used by firms because it
is simple and it provides a
reasonable transfer of cost to
periodic expenses if the asset is
used about the same from
period to period.

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10-2

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Example Exercise 10-2
Equipment that was acquired at the beginning of the year
at a cost of Rp 125,000,000 has an estimated residual
value of Rp 5,000,000 and an estimated useful life of 10
years. Determine the (a) depreciable cost, (b) straight-
line rate, and (c) annual straight-line depreciation.
Follow My Example 10-2
(a) Rp 120,000,000 (Rp 125,000,000 – Rp 5,000,000)
(b) 10% = (1/10)
(c) Rp 12,000,000 (Rp 120,000,000 x 10%) or (Rp 120,000,000 ÷ 10 years)

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For Practice: PE 10-2A, PE 10-2B
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Units-of-Production Method 10-2


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The units-of-production method provides


for the same amount of depreciation
expense for each unit produced or each
unit of capacity used by the asset.

Cost – estimated residual value


Unit depreciation =
Estimated hours, units, etc.

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10-2
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A machine with a cost Rp 24,000,000. Its
estimated residual value is Rp 2,000,000 and its
expected to have an estimated life of 10,000
operating hours.
Cost – estimated residual value
Hourly depreciation =
Estimated hours
Rp 24,000,000 – Rp 2,000,000
Hourly depreciation =
10,000 estimated hours

Hourly depreciation = Rp 2,200 hourly


depreciation 34
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10-2
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The units-of-production method


is more appropriate than the
straight-line method when the
amount of use of a fixed asset
varies from year to year.

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10-2
Example Exercise 10-3
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Equipment acquired at a cost of Rp 180,000,000 has an
estimated residual value of Rp 10,000,000 an estimated
useful life of 40,000 hours, and was operated 3,600
hours during the year. Determine the (a) depreciable
cost, (b) depreciation rate, and (c) the units-of-
production depreciation for the year.
Follow My Example 10-3
(a) Rp 170,000,000 (Rp 180,000,000 – Rp 10,000,000)
(b) Rp 4,250 per hour (Rp 170,000,000/40,000 hours)
(c) Rp 15,300 (3,600 hours x Rp 4,250)
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For Practice: PE 10-3A, PE 10-3B
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Double-Declining-Balance Method 10-2


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The double-declining-
balance method provides
for a declining periodic
expense over the estimated
useful life of the asset.

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10-2
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A double-declining balance rate is
determined by doubling the straight-
line rate. A shortcut to determining
the straight-line rate is to divide one
by the number of years (1/5 = .20).
Hence, using the double-declining-
balance method, a five-year life
results in a 40 percent rate (.20 x 2).

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10-2
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For the first year, the cost of the asset
is multiplied by 40 percent. After the
first year, the declining book value of
the asset is multiplied 40 percent.
Continuing with the example where
the fixed asset cost Rp 24,000,000
and has an expected residual value of
Rp 2,000,000 a table can be built.

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10-2
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Book Value title style
Beginning Annual Deprec. Book Value
Year of Year Rate Deprec. Year-End Year-End

1 Rp 24,000,000 40% Rp 9,600,000

Rp 24,000,000 x .40

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10-2
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Book Value title style
Beginning Annual Deprec. Book Value
Year of Year Rate Deprec. Year-End Year-End

1 Rp 24,000,000 40% Rp 9,600,000 Rp9,600,000 Rp14,400,000


2 14,400,000 40% 5,760,000

Rp 14,400,000 x .40

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10-2
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Book Value title style
Beginning Annual Deprec. Book Value
Year of Year Rate Deprec. Year-End Year-End

1 Rp 24,000,000 40% Rp 9,600,000 Rp 9,600,000 Rp 14,400,000


2 14,400,000 40% 5,760,000 15,360,000 8,640,000

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10-2
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Book Value title style
Beginning Annual Deprec. Book Value
Year of Year Rate Deprec. Year-End Year-End

1 Rp 24,000,000 40% Rp 9,600,000 Rp 9,600,000 Rp 14,400,000


2 14,400,000 40% 5,760,000 15,360,000 8,640,000

3 8,640,000 40% 3,456,000 18,816,000 5,184,000

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10-2
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Book Value title style
Beginning Annual Deprec. Book Value
Year of Year Rate Deprec. Year-End Year-End

1 Rp 24,000,000 40% Rp 9,600,000 Rp 9,600,000 Rp 14,400,000


2 14,400,000 40% 5,760,000 15,360,000 8,640,000
3 8,640,000 40% 3,456,000 18,816,000 5,184,000
4 5,184,000 40% 2,073,600 20,889,600 3,110,040

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10-2
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Book Value title style
Beginning Annual Deprec. Book Value
Year of Year Rate Deprec. Year-End Year-End

1 Rp 24,000,000 40% Rp 9,600,000 Rp 9,600,000 Rp 14,400,000


2 14,400,000 40% 5,760,000 15,360,000 8,640,000
3 8,640,000 40% 3,456,000 18,816,000 5,184,000
4 5,184,000 40% 2,073,600 20,889,600 3,110,040
5 3,110,040 40% 1,110,400 22,000,000 2,000,000

DEPRECIATION STOPS WHEN


BOOK VALUE EQUALS STOP
RESIDUAL VALUE! 45
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10-2
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Book Value title style
Beginning Annual Deprec. Book Value
Year of Year Rate Deprec. Year-End Year-End

1 Rp 24,000,000 40% Rp 9,600,000 Rp 9,600,000 Rp 14,400,000


2 14,400,000 40% 5,760,000 15,360,000 8,640,000
3 8,640,000 40% 3,456,000 18,816,000 5,184,000
4 5,184,000 40% 2,073,600 20,889,600 3,110,040
5 3,110,040 – Rp 2,000,000 1,110,400 22,000,000 2,000,000

“Forced” Desired
annual ending book
depreciation value
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10-2
Example Exercise 10-4
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Equipment that was acquired at the beginning of the year
at a cost of Rp 125,000,000 has an estimated residual
value of Rp 5,000,000 and an estimated useful life of 10
years. Determine the (a) depreciable cost, (b) double-
declining-balance rate, and (c) double-declining balance
depreciation for the first year.
Follow My Example 10-4
(a) Rp 120,000,000 (Rp 125,000,000 – Rp 5,000,000)
(b) 20% [(1/10) x2]
(c) Rp 25,000,000 (Rp 125,000,000 x 20%)
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For Practice: PE 10-4A, PE 10-4B
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Summary of 10-2
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Depreciation Methods

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Comparing 10-2
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Depreciation Methods

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Depreciation for Govenment Income 10-2


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Tax

Indonesia Directorate
General of Tax (DGT) specifies
the depreciation rate for each group
of fixed asset.

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10-2
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DGT specifies Six classes of useful
life and depreciation rates for each
class. The two most common classes
are the 4-year class (includes public
transport vehicles and office
equipment from woods) and the 8-
year class (includes most machinery,
automobiles and equipment).
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Revising Depreciation Estimates 10-2


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A machine purchased for Rp 140,000,000 was
originally estimated to have a useful life of five
years and a residual value of Rp 10,000,000.
The asset has been depreciated for two years
using the straight-line method.
Annual Rp140,000,000 – Rp10,000,000
Depreciation (S/L) = 5 years
Annual
= Rp26,000,000 per year
Depreciation (S/L)
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10-2
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At the end of two years, the asset’s book value
is Rp 88,000,000, determined as follows:

Asset cost Rp 140,000,000


Less accumulated depreciation
(Rp 26,000,000 per year x 2 years) 52,000,000
Book value, end of second year Rp 88,000,000

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10-2
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During the third year, the company estimates that
the remaining useful life is eight years (instead of
three) and that the residual value is Rp 8,000,000
(instead of Rp 10,000,000). Depreciation expense
for each of the remaining eight year is determined
as follows:
Book value, end of second year Rp 88,000,000
Less revised estimated residual value 8,000,000
Revised remaining depreciation cost Rp 80,000,000
Revised annual depreciation expense
(Rp80,000,000 ÷ 8 years) Rp 10,000,000 54
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10-2

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Example Exercise 10-5
A warehouse with a cost of Rp 500,000,000 has an
estimated residual value of Rp 120,000,000 an estimated
useful life of 40 years, and is depreciated by the
straight-line method. (a) Determine the amount of
annual depreciation. (b) Determine the book value at
the end of the 20th year of use. (c) If at the start of the
21st year it is estimated that the remaining life is 25
years and that the residual value is Rp 150,000,000
determine the depreciation expense for each of the
remaining 25 years.
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10-2

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Follow My Example 10-5

a. Rp 9,500,000 [(Rp 500,000,000 – Rp


120,000,000)/40]
b. Rp 310,000,000 [Rp 500,000,000 – (Rp
9,500,000 x 20)]
c. Rp 6,400,000 [Rp 310,000,000 – Rp
150,000,000)/25]
For Practice: PE 10-5A, PE 10-5B 56
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10-3
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Objective 3
Journalize entries
for the disposal of
fixed assets.

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Discarding Fixed Assets 10-3


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A piece of equipment acquired at a cost of
Rp 25,000,000 is fully depreciation. On
February 14, the equipment is discarded.

Feb. 14 Accumulated Depr.—Equipment 25 000 00


Equipment 25 000 00
To write off equipment
discarded.

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10-3
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Equipment costing Rp 6,000,000 is depreciated
at an annual straight-line rate of 10%. After the
adjusting entry, Accumulated Depreciation—
Equipment had a Rp 4,750,000 balance. The
equipment was discarded on March 24.
Mar. 24 Depreciation Expense—Equipment 150 000
Accum. Depr.—Equipment 150 000
To record current
Rp 600,000 x 3/12
depreciation on
equipment discarded.

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10-3
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The discarding of the equipment is then
recorded by the following entry:

Mar. 24 Accum. Depreciation—Equipment 4 900 000


Loss on Disposal of Fixed Assets 1 100 000
Equipment 6 000 000
To write off equipment
discarded.

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Selling Fixed Assets 10-3


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Equipment costing Rp 10,000,000 is depreciated at
an annual straight-line rate of 10%. The equipment
is sold for cash on October 12. Accumulated
Depreciation (last adjusted December 31) has a
balance of Rp 7,000,000 and needs to be updated.
Oct. 12 Depreciation Expense—Equipment 750 000
Accum. Depr.—Equipment 750 000
To record current
depreciation on Rp 10,000,000
equipment sold. x ¾ x 10%
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Assumption 1 10-3
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The equipment is sold on October
12 for Rp 2,250,000. No gain or
loss.
Oct. 12 Cash 2 250 000
Accum. Depreciation—Equipment 7 750 000
Equipment 10 000 000
Sold equipment at book
value.

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Assumption 2 10-3
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The equipment is sold on October 12
for Rp 1,000,000; a loss of Rp
1,250,000.
Oct. 12 Cash 1 000 000
Accum. Depreciation—Equipment 7 750 000
Loss on Disposal of Fixed Assets 1 250 000
Equipment 10 000 000
Sold equipment at a loss.

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Assumption 3 10-3
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The equipment is sold on October 12
for Rp 2,800,000; a gain of Rp
550,000.
Oct. 12 Cash 2 800 000
Accum. Depreciation—Equipment 7 750 000
Equipment 10 000 000
Gain on Disp. of Fixed Assets 550 000
Sold equipment at a gain.

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10-3

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Example Exercise 10-6
Equipment was acquired at the beginning of year at a
cost of Rp 91,000,000. The equipment was depreciated
using the straight-line method based upon an estimated
useful life of 9 years and an estimated residual value of
Rp 10,000,000.
a. What was the depreciation for the first year?
b. Assuming the equipment was sold at the end of the
second year for Rp 78,000,000 determine the gain or
loss on sale of the equipment.
c. Journalize the entry to record the sale.
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10-3

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Follow My Example 10-6

a. Rp 9,000,000 [(Rp 91,000,000 – Rp 10,000,000)/9]


b. Rp 5,000,000 gain; Rp 78,000,000 – [Rp 91,000,000 – (Rp
9,000,000 x 2)]
c. Cash 78,000,000
Accum. Depreciation—Equipment 18,000,000
Equipment 91,000,000
Gain on Disposal of Fixed Assets 5,000,000

For Practice: PE 10-6A, PE 10-6B 66


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Exchanging Fixed Assets 10-3


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When old equipment is traded for new


equipment, the seller often allows the buyer
a trade-in allowance for the old equipment
traded. The remainder, the boot, is either
paid in cash or recorded as a liability.

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10-3
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IMPORTANT!
Gains on exchanges of similar
fixed assets are not recognized
for financial reporting purposes.

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10-3
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On June 19, assume that new
equipment being purchased has a list
price of Rp 5,000,000. The dealer
allows a trade-in allowance of Rp
1,100,000 on the old, similar
equipment. The old equipment cost
Rp 4,000,000 and has a book value
of Rp 800,000.
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Two Methods of Determining Cost 10-3


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Method One
List price of new equipment Rp 5,000,000
Trade-in allowance Rp 1,100,000
Book value of old equipment 800,000
Unrecognized gain on exchange (300,000)
Cost of new equipment Rp 4,700,000

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10-3
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Method Two
Book value of old equipment Rp 800,000
Cash paid at date of exchange 3,900,000
Cost of new equipment Rp 4,700,000

Note that either method provides the same


cost for the new equipment.

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10-3
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On June 19, equipment was
exchanged at a gain of Rp 300,000.

June 19 Accum. Depreciation—Equipment 3 200 000


Equipment (new equipment) 4 700 000
Equipment (old equipment) 4 000 000
Cash 3 900 000
To record exchange of
equipment.

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Losses on Exchanges 10-3


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For financial reporting purposes, losses are
recognized on exchange of similar fixed
assets if the trade-in allowance is less than
the book value of the old equipment. On
September 7, new equipment was acquired
by trading in old equipment with a cost of
Rp 7,000,000 and a book value of Rp
2,400,000 and giving a cash payment of Rp
8,000,000.
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10-3
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Cost of old equipment
Master title style
Rp 7,000,000
Accumulated depreciation at date of exchange 4,600,000
Book value at September 7, date of exchange Rp 2,400,000
Trade-in allowance on old equipment 2,000,000
Loss on exchange Rp 400,000

Sept 7 Accum. Depreciation—Equipment 4 600 000


Equipment 10 000 000
Loss on Disposal of Fixed Assets 400 000
Equipment 7 000 000
Cash 8 000 000
To record exchange of
equipment with loss. 74
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10-3

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Example Exercise 10-7
On the first day of the fiscal year, a delivery truck with a
list price of Rp 75,000,000 was acquired in exchange for
an old delivery truck and Rp 63,000,000 cash. The old
truck had a cost of Rp 50,000,000 and accumulated
depreciation of Rp 39,500,000.
a. Determine the cost of the new truck for financial
reporting purposes.
b. Journalize the entry to record the exchange.

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10-3

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Follow My Example 10-7
a. Rp 73,500,000
List price of new truck Rp 75,000,000
Trade-in allowance on old truck
($75,000 – $63,000) Rp 12,000,000
Book value of old truck
($50,000 – $39,500) 10,500,000
Unrecognized gain on exchange (1,500,000)
Cost of new truck Rp 73,500,000

or
(Continued) 76
77

10-3

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Follow My Example 10-7
Book value of old truck (Rp 50,000,000 –
Rp 39,500,000) Rp 10,500,000
Plus cash paid at date of exchange 63,000,000
Cost of new truck Rp 73,500,000

b. Truck (new) 73,500,000


Accumulated Depreciation—
Truck (old) 39,500,000
Truck (old) 50,000,000
Cash 63,000,000

77
For Practice: PE 10-7A, PE 10-7B
78

10-4
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Objective 4
Compute depletion
and journalize the
entry for depletion.

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79

Natural Resources 10-4


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The process of
transferring the cost of
natural resources to an
expense account is called
depletion.

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Recording Depletion 10-4


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A business paid Rp 400,000,000 for


the mining rights to a mineral deposit
estimated at 1,000,000 tons of ore.
The depletion rate is Rp 400 per ton
(Rp 400,000,000/1,000,000 tons).

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10-4
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If 90,000 tons are mined during the
year, an adjusting entry is required
at the end of the accounting period.

Adjusting Entry
Dec. 31 Depletion Expense 36 000 000
Accumulated Depletion 36 000 000
Depletion of mineral
deposit.
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10-4

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Example Exercise 10-8
Earth’s Treasures Mining Co. acquired mineral rights for
Rp 45,000,000,000. The mineral deposit is estimated at
50,000,000 tons. During the current year, 12,600,000
tons were mined and sold.
a. Determine the depletion rate.
b. Determine the amount of depletion expense for the
current year.
c. Journalize the adjusting entry on December 31 to
recognize the depletion expense.
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82
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10-4

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Follow My Example 10-8
a. Rp 900 per ton = Rp 45,000,000,000/50,000,000 tons
b. Rp11,340,000,000 = (12,600,000 tons x Rp 900 per ton)
c. Dec. 31 Depletion Expense 11,340,000,000
Accumulated Depletion 11,340,000,000

Depletion of mineral
deposit.

83
For Practice: PE 10-8A, PE 10-8B
84

10-5
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Objective 5
Describe the accounting
for intangible assets,
such patents, copyrights,
and goodwill.
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85

Intangible Assets 10-5


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Patents, copyrights, trademarks, and
goodwill are long-lived assets that
are useful in the operations of a
business and not held for sale. These
assets are called intangible assets
because they do not exist physically.

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10-5
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The exclusive right granted by the
federal government to
manufacturers to produce and sell
goods with one or more unique
features is a patent. These rights
continue in effect for 20 years.

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Journalizing Amortization of a 10-5


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Patent

At the beginning of its fiscal year, a business


acquires a patent right for Rp 100,000,000. Its
remaining useful life is estimated at 5 years.
Adjusting Entry
Dec. 31 Amortization Expense—Patents 20 000 000
Patents 20 000 000
Patent amortization
(Rp 100,000,000/5).
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87
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10-5
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Adjusting Entry
Dec. 31 Amortization Expense—Patents 20 000 000
Patents 20 000 000
Patent amortization
(Rp 100,000,000/5).

Because a patent (and other intangible assets) does not


exist physically, it is acceptable to credit the asset. This
approach is different from physical fixed assets that
require the use of a contra asset account.
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Copyright 10-5
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The exclusive right granted by the
federal government to publish and
sell a literary, artistic, or musical
composition is a copyright. A
copyright extends for 70 years
beyond the author’s death.

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Trademark 10-5
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A trademark is a unique name, term, or
symbol used to identify a business and its
products. Most businesses identify their
trademarks with ® in their advertisements
and on their products. Trademarks can be
registered for 10 years and can be
renewed every 10 year period thereafter.

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Goodwill 10-5
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In business, goodwill refers to an
intangible asset of a business that is
created from such favorable factors
as location, product quality,
reputation, and managerial skill.

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10-5
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Generally accepted accounting principles


permit goodwill to be recorded in the
accounts only if it is objectively
determined by a transaction.

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Impaired Goodwill 10-5


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A loss should be recorded if the business
prospects of the acquired firm (and the acquired
goodwill) become significantly impaired.

Mar. 19 Loss from Impaired Goodwill 50 000 000


Goodwill 50 000 000
Impaired goodwill.

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10-5

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Example Exercise 10-9

On December 31 it was estimated that goodwill of Rp


40,000,000 was impaired. In addition, a patent with an
estimated useful economic life of 12 years was acquired
for Rp 484,000,000 on July 1.
a. Journalize the adjusting entry on December 31,
for the impaired goodwill.
b. Journalize the adjusting entry on December 31
for the amortization of the patent rights.

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10-5

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Follow My Example 10-9
a. Dec. 31 Loss from Impaired Goodwill 40,000,000
Goodwill 40,000,000
Impaired goodwill.
b. Dec. 31 Amortization Expense—Patents 3,500,000
Patents 3,500,000
Amortized patent rights
[(Rp 84,000,000/12) x (6/12)].

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For Practice: PE 10-9A, PE 10-9B
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10-6
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Objective 6
Describe how depreciation
expense is reported in an
income statement, and
prepare a balance sheet
that includes fixed assets
and intangible assets.
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10-6
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 The amount of each major class of fixed
assets should be disclosed in the balance
sheet or in notes.
 The fixed assets may be shown at their net
amount.
Office equipment Rp 125,750,000
Less accumulated depreciation 86,300,000
Net book value Rp 39,450,000
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10-6
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 The cost of mineral rights or ore deposits is
normally shown as part of the fixed asset
section of the balance sheet. The related
accumulated depletion should also be
disclosed.
 Intangible assets are usually reported (net of
amortization) in the balance sheet in a
separate section immediately following fixed
assets.
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Fixed Assets and Intangible


Assets in the Balance Sheet 10-6
Click to edit Master title style PT ASTRA AGRO LESTARI Tbk
BALANCE SHEET (PARTIAL)
31-Dec-07

Assets

Total Current Assets 1,647,854,000,000

Property,Plant, and Equipment


Cost Accum.Depr Book Value
Land 102,249,000,000 0 102,249,000,000
Road & Bridges 430,410,000,000 162,006,000,000 268,404,000,000
Building, Installations and Machinery 794,147,000,000 217,622,000,000 576,525,000,000
Machinery and Equipment 766,698,000,000 291,510,000,000 475,188,000,000
Vehicles 257,916,000,000 147,864,000,000 110,052,000,000
Office and Housing Equipment 48,010,000,000 37,758,000,000 10,252,000,000
Construction in Progress 212,904,000,000 0 212,904,000,000
2,612,334,000,000 856,760,000,000 1,755,574,000,000

Plantations
Mature Plantations
Cost Accum. Depl. Book Value
Oil Palm 1,207,204,000,000 543,310,000,000 663,894,000,000
Rubber 19,834,000,000 8,492,000,000 11,342,000,000
Cocoa 0 0 0
1,227,038,000,000 551,802,000,000 675,236,000,000

Immature Plantations
Oil Palm 659,536,000,000 0 659,536,000,000
Rubber 7,760,000,000 0 7,760,000,000
667,296,000,000 667,296,000,000
Total Property, Plant and Equipment 2,430,810,000,000

Intagible Assets
99
Goodwill 66,947,000,000
Total Intagible Asset 66,947,000,000
100

Fixed Asset Turnover Ratio 10-6


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One measure of the revenue-generating
efficiency of fixed assets is the fixed asset
turnover ratio. It measures the number of
dollars of revenue earned per dollar of fixed
assets and is computed as follows:
Fixed Asset Revenue
Turnover Ratio
=
Average Book Value of
Fixed Assets

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101

Financial Analysis and Interpretation 10-6


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For Rimo Department Store
Fixed Asset Revenue
Turnover Ratio
=
Average Book Value of
Fixed Assets

Fixed Asset Turnover Rp 199,246,551,622


= (24,661,628,738 + 33,455,273,668)/2
Ratio
Fixed Asset 6.68
Turnover Ratio
=
Conclusion: For every Rupiahs of fixed assets,
Rimo earns Rp6.68 of revenue. 101