periods it generates revenue. This is called depreciation. its service life. Stage 2 -Depreciation. Once the asset is acquired, it will be used in the operation of the company's business. We must allocate the cost across all accounting In accounting, depreciation does not have anything to do with fair value. Depreciation is the allocation of the assets cost across the periods There are many methods of depreciation. In this class, we will focus on three methods that may be used. : This method allocates an equal portion of the cost to each year of service life. This method allocates depreciation based on the use of the asset during the period. For example, a car may be depreciated of the assets life. There are several declining balance methods, but we will focus on Double-Declining balance as an example. This is an accelerated method of depreciation, which means a greater percentage of cost will be allocated in the earlier years 1) 2) based on the miles used during the period. 3) - Some 1 2) 3) 4) Let's see how to calculate depreciation using these methods. To begin, there are some things we must know in order to catculate depreciation: The capitalized cost of the asset being depreciated. The estimated use the company expects to receive from the asset before disposing of it. This is also termed useful ife. The amount the company expects to receive from selling the asset at the end of its life. Also referred to as salvage value. _: The method of depreciation the company will use. Finally, there are a couple of terms we must discuss before moving forward. 1) Depreciable Cost: This is the amount of the asset's cost the company will depreciated over the service life. 2) Book Value: This may be called Carry Value. This is the amount the asset is carried for on the balance sheet. a. Book Value a. Depreciable Cost 1) 2) 3) The company uses the asset to generate revenues in the company and allocates the cost of the asset to the proper accounting period The life-cycle of a long-term tangible asset (typically referred to as Property, plant, and Equipment) has 3 stages: When the asset is acquired by the company. The asset no longer is beneficial to the company, so it must be disposed of. Stage 1 - Acquisition: Let's begin with acquisition of property, plant, and equipment. When acquiring the asser, the company must include al costs to get the asset ready for its intended use. Let's look at an example: Problem One: On March 1, 2021, Mark Company acquired real estate on which it planned to construct a small office building. The company paid $75,000 in cash, An old Warehouse on the property was razed at a cost of $6.00, the salvaged materials were cols for $1.200. Additional expenditures before construction began linolentied attorney's fee for work concerning the land purchase, s3,800 real estate broker's tee, S5,500 architect's tee, and $11,000 to put in driveways and a parking lot. Instructions (a) Determine the amount to be reported as the cost of the land. (b) For each cost not used in part (a), indicate the account to be debited. Problem Two: Bent Willow Bakery purchases land, building and equipment for a single purchase price of 5600,000. However, the estimated fair values of the land, building and equipment are $175,000, 5455,000, and 570,000, respectively, for a total estimated fair value of S700,000. Determine the amounts Bent Willow should record in the separate accounts for the land, the building, and the equipment