# Write a 260- to 350-word summa

Write a 260- to 350-word summary of this week’sreadings.

Describe major concepts you learned.

Explain how you can apply what you learned toyour current or future workplace.

3.1 Determine what constitutes a property, plant, or equipmentasset.

3.2 Calculate depreciation under various methods.

3.3 Explain the accounting issues related to fixed assets andintangibles.

3.4 Discuss asset impairment and the required accounting forimpairments.

3.1

Property, plant, and equipment (PP&E) are long-term assetsvital to business operations and not easily converted into cash.Property, plant, and equipment are tangible assets, meaning theyare physical in nature or can be touched. The total value ofPP&E can range from very low to extremely high compared tototal assets. It is important to note when calculating equity.

Property, plant, and equipment (PP&E) includes tangibleitems that are expected to be used in more than one reportingperiod and that are used in production, for rental, or foradministration. This can include items acquired for safety orenvironmental reasons. In certain asset-intensive industries,PP&E is the largest class of assets.

PP&E items are commonly grouped into classes, which aregroups of assets having a similar nature and use. Examples ofPP&E classes are buildings, furniture and fixtures, land,machinery, and motor vehicles. Items grouped within a class aretypically depreciated using a common depreciation calculation.

3.2

1. Straight line method- simplest method. Determine the salvagevalue of the fixed asset, deduct from the cost and divide theremaining balance by the estimated number of years for the life ofthe asset to get the annual depreciation.Divide by 12 months to getthe monthly depreciation.
2. Declining balance method-the only difference with item 1 isthat you double the percentage of depreciation For example, as perstraight line method, the useful life of the asset is five years,thus, the annual rate will be 20%. Using the accelerated method,the annual rate would be 40%.
3. Sum of the Years Digits-Add the estimated years of the fixedasset and by factoring the years, the depreciation is computed. Asin example per item 1 above, the estimated life is 5 years, thus,5+4+3+2+1=15. Deduct the salvage value of the fixed asset. Tocompute, cost=28,000.00, salvage value=3,000.00. First year,28,000.00–3,000.00 x 5/15=8,250.00, and so on.
4. Units of production method- it is based on the estimatedquantity of units the fixed asset will produce over its usefullife. Salvage value is deducted from the cost. Compute the unitdepreciation by dividing the net fixed asset cost by the estimatedquantity of production. To illustrate: Cost 28,000.00 less salvagevalue of 3,000.00, net 25,000.00. Estimated quantity of productionis 50,000, thus unit depreciation rate will be=25,000.00/50,000=0.50. Production in the first year year is 12,000 units, thusmultiply by 0.50, would result to 6,000.00 depreciation expense.The same unit rate will be applied for the remaining years of theasset.

3.3

Fixed assets range from tangible equipment and computers tointangible computer software programs and copyrights or trademarks.Regardless of the type or category of a fixed asset, all contributeto business productivity and profitability, all have a useful lifeof more than one year and all eventually become used up or wear outover time. Just as a business’s inventory items have a product lifecycle, so do its tangible and intangible fixed capital assets. Thelife cycle begins with acquisition, continues with consumption andmaintenance and ends with disposal. Key accounting issues arisingduring this time focus mainly on financial reporting and assetvaluation

3.4

An asset is impaired to reflect its fair value or realisablevalue. For instance, at the point of invoicing, a receivable may berecognised at its full value but if it is not realised within thenormal or extended credit period, then it’s recorded value wouldneed to be written down (or impaired) to reflect its recoveryvalue

Impairment could be temporary (to reflect uncertainty in thetiming and quantum of recovery) or could be permanent (to reflect apermanent reduction in value

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