Depreciation. Shows the amount of value an asset loses over time Is used to describe the decline in the value of fixed assets Can not be used for intangible assets Means the allocation of the cost of an asset over its useful life.
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Compare expected UNDISCOUNTED net cash flows (NCF) from asset with book value (BV):
If impairment: Compare DISCOUNTED present value of expected net cash flows with market value.
PV of NCF < MV = write down to MV –
“Assets to be disposed off”
Note: This is a business, NOT and accounting decision!
What is the new depreciation expense?
(slide 2) A be
(Slide 3) D
(Slide 4) C
(Slide 10) $1,600,000
(slide 11) D
(slide 12) $1,100,000Answers