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U.S. GAAP Codification Accounting Topics



Accounting Terms Dictionary
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Principles of AccountingU.S. GAAP Financial Reporting Guide
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Accounting Terms Dictionary

Depreciation of Property, Plant and Equipment

Depreciation of Property, Plant and Equipment

1. Depreciation is a process of allocating the cost of a long-lived asset.

2. If an asset is used for more than one accounting period
--> the cost of an asset is allocated to each period

3. Depreciation method should be
--> systematic and rational

4. Depreciation methods
(1) straight line depreciation
(2) double declining balance method
(3) sum-of-the-years'-digits method
(4) production based method

5. straight line depreciation
(1) depreciation base is equally allocated to each period
(2) depreciation base = cost - residual value
(3) depreciation amount = (cost - residual value) x 1/useful life of an asset

6. double declining balance method
(1) depreciation amount = beginning book value x depreciation rate
(2) book value = cost of an asset - accumulated depreciation
(3) beginning book value
= balance of book value at the beginning of period
= equals to book value at the end of previous period
(4) depreciation rate = (1/useful life) x 200%
--> because 200% is multiplied
--> this method is called "double" declining balance method

7. 150% declining balance method
(1) depreciation rate = (1/useful life) x 150%

8. sum-of-the-years'-digits method
(1) depreciation amount
= (cost - residual value) x depreciation rate for that period

(2) depreciation rate is determined as follows:

If the useful life of an asset is N periods
--> Sum-of-the-years'-digits
= 1 + 2 + 3 + ... + N
= N x (N+1) / 2

If useful life is 5 years
--> Sum-of-the-years'-digits
= 1 + 2 + 3 + 4 + 5
= 5 x (5 + 1) / 2
= 30 / 2 = 15

depreciation rate
--> for period 1 = 5 / 15
--> for period 2 = 4 / 15
--> for period 3 = 3 / 15
--> for period 4 = 2 / 15
--> for period 5 = 1 / 15

9. Production based method
(1) If an asset is designed to produce certain number of product units
--> depreciation amount = (cost - residual value) x (A) / (B)
--> (A) = number of products produced during the period
--> (B) = total number of product units expected from an asset

(2) If an asset is designed to be used for certain number of usage hours
--> depreciation amount = (cost - residual value) x (C) / (D)
--> (C) = number of hours used during the period
--> (D) = total number of usage hours expected from an asset


Examples of Depreciation

1. Straight line depreciation examples
2. Double declining balance method example 1
3. Double declining balance method example 2



Index of Accounting Terms Dictionary


U.S. GAAP by Codification Topic 
 
 105  GAAP Hierarchy 
 105  GAAP History 

 205  Presentation of Financial Statements 
 205-20 Discontinued Operations 
 210  Balance Sheet 
 210-20 Offsetting 
 220  Comprehensive Income 
 225  Income Statement 
 225-20 Extraordinary and Unusual Items 
 230  Statement of Cash Flows 
 250  Accounting Changes and Error Corrections 
 260  Earnings per Share 
 270  Interim Reporting
 
 310  Impairment of a Loan
 320  Investment Securities 
 320  Other-Than-Temporary Impairments, FSP FAS 115-2 
 320-10-05 Overview of Investments in Other Entities 
 320-10-35 Reclassification of Investments in Securities
 323-10 Equity Method Investments
 323-30 Investments in Partnerships and Joint Ventures 
 325-20 Cost Method Investments 
 330  Inventory

 340-20 Capitalized Advertising Costs 
 350-20 Goodwill 
 350-30 Intangibles Other than Goodwill 
 350-40 Internal-Use Software 
 350-50 Website Development Costs 
 360  Property, Plant and Equipment
 360-20 Real Estate Sales 
 
 410  Asset Retirement and Environmental Obligations 
 420  Exit or Disposal Cost Obligations 
 450  Contingencies 
 450-20 Loss Contingencies 
 450-30 Gain Contingencies
 480  Redeemable Financial Instruments 

 505-20 Stock Dividends, Stock Splits 
 505-30 Treasury Stock


 605  SEC Staff Accounting Bulletin, Topic 13 
 605-25 Revenue Recognition - Multiple Element Arrangements 
 
 715-30 Defined Benefit Plans - Pension
 718  Share-Based Payment 
 730  Research and Development 
 730-20 Research and Development Arrangements 

 805  Business Combinations  
 810  Consolidation 
 810  Noncontrolling Interests 
 810  Consolidation of Variable Interest Entities, SFAS 167 
 
 815  Derivatives and Hedging Overview 

 820  Fair Value Measurements  
 820  Fair value when the markets are not active, FSP FAS 157-4
 825  Fair Value Option 

 830  Foreign Currency Matters 
 830-20 Foreign Currency Transactions 
 830-30 Translation of Financial Statements 
 835  Interest 
 835-20 Capitalization of Interest 
 835-30 Imputation of Interest 

 840  Leases 
 840-20 Operating Leases 
 840-30 Capital Leases 
 840-40 Sale-Leaseback Transactions
 845  Nonmonetary Transactions 

 855  Subsequent Events 
 860-20 Sale of Financial Assets, SFAS 166 
 860-50 Servicing Assets and Liabilities, SFAS 156 

 985-20 Costs of software to be sold  


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