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Straight Line Amortization (amortize at the same rate all year)
Cost - residual value= amortizable cost (cost over time)
amortizable cost/time period= amortization rate
calculate straight line amortization for each year
amortization cost should be the same as when you add up your straight line amortizations
Units of Production Amortization
(while you use asset more amortization increases and as you us less amortization decreases)
-amortization is measured by the amount of use
cost-residual value= amortizable cost (cost over usage)
when you get to the last one you must consider that you don't want to go over the amortizable cost. You add up the numbers and make it so that the last one will add to the rest to eqaul the amortizable cost
DIFFERENCES
straight line it's the same for each full year, production method most usage and least usage have the highest and lowest amortization
Double Declining Balance Amortization
(accelerated amortization method)-aggressive and quick amortization
Starting point is to calculate a percentage, based on straight line amortization (time)
make it a ratio, the because iit's double declining times by 2
make a table
"year|book value| Partial Year| Rate| Amortization Expense| Ending book value"
cannot amortize below residual value, plug in the number to take you there, for following year you don't amortize anything
total amortization expense should equal to amortizable cost
SALE of Capital Assets
calculate amortization up to date of sale, compute the assets net value
gain of sale -
loss on sale of asset-
selling asset
Gain on sale Je:
Dr Cash
Dr AA-Car
Cr Car
Cr Gain on Sale
Loss on sale Je:
Dr Cash
Dr AA-Car
Dr loss on Sale
Cr Car
*aa is a credit account so debit it to get rid of it
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