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Operational Assets: Utilization and Impairment

This chapter completes our discussion of accounting for operational assets. We address the allocation of the cost of these assets to the periods benefited by their use.

The usefulness of most operational assets is consumed as the assets are applied to the production of goods or services. Cost allocation corresponding to this consumption of usefulness is known as depreciation for plant and equipment, depletion for natural resources, and amortization for intangibles. We also consider the treatment of expenditures incurred subsequent to acquisition and the impairment of operational assets.

Explain the concept of cost allocation as it pertains to operational assets.

Determine periodic depreciation using both time-based and activity-based methods.

Calculate the periodic depletion of a natural resource.

Calculate the periodic amortization of an intangible asset.

Explain the appropriate accounting treatment required when a change is made in the service life or residual value of an operational asset.

Explain the appropriate accounting treatment required when a change in depreciation, amortization, or depletion method is made.

Explain the appropriate treatment required when an error in accounting for an operational asset is discovered.

Identify situations that involve a significant impairment of the value of operational assets and describe the required accounting procedures.

Discuss the accounting treatment of repairs and maintenance, additions, improvements, and rearrangements to operational assets.

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