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Архитектура Аудит Военная наука Иностранные языки Медицина Металлургия Метрология Образование Политология Производство Психология Стандартизация Технологии |
Text 13. Depreciation of Assets
In accounting, the process of allocating in a systematic and rational manner the cost of certain items of the assets (these are mainly capital assets) over the period of its useful life is known as depreciation. There are three main types of depreciation causing the decrease in value of an asset: 1) physical depreciation, 2) moral depreciation, 3) deterioration . In the process of production the capital assets gradually wear out, thus after a definite period of time they have to be replaced. This is known as their physical depreciation. However, capital assets are also subject to moral depreciation, that is after serving for some period of time, they may become obsolete before they are physically worn out and have to be replaced by more up-to-date means of production. Such obsolescence of the assets is caused by technological changes and by the introduction of new and better machinery and methods of production. Obsolescence can also be caused by the commodity produced by the asset, for example, if it goes out of fashion. In the latter case, the degree of obsolescence will depend on the specific nature of the asset. Sometimes assets can be easily adapted to alternative uses while others may have only one application. Deterioration means a change in value of an asset because of the effects of nature, for example, for machinery this might be rust, for buildings it is connected with decadence, for farm lands it is caused by erosion. In accounting, it is important to know depreciation of the capital assets as it increases the company's expenses. Exercise 90 . Translate into English. The process of allocating in a systematic and rational manner, useful life, to cause the decrease in value of an asset, physical depreciation, moral depreciation, deterioration, after a definite period of time, to be subject to, to become obsolete, to be physically worn out, to be replaced by more up-to-date means of production, to be caused by technological changes, to be caused by the introduction of new and better machinery, to go out of fashion, to depend on the specific nature of the asset, to be easily adapted to alternative uses, to be connected with decadence, to be caused by erosion.
Exercise 91 . Complete the sentences. 1. Most capital assets have a limited life due to ... 2. Depreciation results from such causes as .... 3. In the case of machinery one should take into account.... 4. Obsolescence can be caused either .... 5. The effects of nature decrease the value of capital assets because of... 6. The choice of depreciation method is particularly important.... 7. In practice we often use the following methods of calculating depreciation ... Exercise 92 . Complete the text by inserting the correct form of the verbs in the box.
Fixed assets such as buildings, plant and machinery (but not land) gradually (1) … value, because they (2) … or decay, or because more modern and efficient versions are developed. Consequently, they have to be replaced every so often. The cost of buying or replacing fixed assets that will be used over many years is not (3) … from a single year's profits but is accounted for over the several years of their use and wearing out. This accords with the matching principle that costs are identified with related revenues. The process of (4) … an asset into an expense is known as depreciation. Various methods of depreciation (5) …, but they all (6) … estimating the useful life of the asset, and dividing its estimated cost (e.g. purchase price minus any scrap or secondhand value at the end of its useful life) by the number of years. The most usual method of depreciation is the straight line method, which simply spreads the total expected cost over the number of years of anticipated useful life, and charges an equal sum each year. The reducing or declining balance method (7) … smaller amounts of an asset's value each year in cases where maintenance costs for the use of an asset are expected to (8) … over time. The annuity system of depreciation (9) … the cost of an asset equally over a number of years and (10) … this, and an amount representing the interest on the asset's current value, each year. Some tax legislations (11) … accelerated depreciation: writing off large amounts of the cost of capital investments during the first years of use; this is a measure to (12) … investment.
Exercise 93 . Use the verbs in the appropriate tense and voice form. Translate the sentences into Ukrainian. 1. Our economists (to choose) another level of output for the next year as the situation at the market already (to change). 2. The demand for a commodity (to affect) by a change in price and this relationship (to call) elasticity of demand. 3. Some African countries already (to buy) large quantities of food from the European countries and the USA as they (to lose) most of their crops because of the drought. 4. The present director of the company (to know) the way of running a business efficiently as business administration (to teach) to him at London School of Business. 5. Recently the increase in consumers' income (to follow) by the increased demand for normal goods. 6. This American company (to sell) its computers very successfully at the market now by maintaining low retail prices. 7. The balance sheet (to show) to the company's manager last Monday and he (can) make proper managerial decisions just in time. 8. New economical methods of transporting fruit and vegetables (to develop) in the future and they (to help) to deliver fresh products to the consumers more quickly. Exercise 94 . 1. Sum up what the text says about depreciation of assets. 2. Answer the question: What types of depreciation are the following items subject to: computers, combines, farm buildings?
Exercise 95. Learn the following words and word combinations.
Exercise 96. Read, translate and give the gist of text 14. Text 1 4. Overheads and Their Recovery The costs of a business are of two types - direct and indirect. The direct costs vary directly with production. If one additional unit of production is made, there will be a measurable increase in direct cost. When one unit less is made, there will be similar measurable decrease in direct cost. Direct raw material is normally the largest component of direct cost. It includes all items of material that are of sufficient size to warrant the effort of changing directly to the job. Small items, such as glue, paint and small quantities of nails, screws and rivets, do not merit the clerical effort involved in charging directly to the job, and would be recovered as an overhead. Direct wages will vary directly with production where remuneration is based upon piecework only. This means that a specific amount is paid when a production operation is successfully finished. If it is not finished, no payment is made. Overhead is a general term applied to all costs involved in running a business, other than direct costs. It covers the costs of running the works organisation; product research and development; the administration of the business; selling and distributing the product; and the cost of raising finance. Overheads are diverse, covering the whole of the business organisation. The management accountant has the problem of allocating these costs to the individual product lines being manufactured. Cost centers To help in this task, the organisation is split up into cost centers. These are areas of activity to which are gathered all the costs of a like nature. A maintenance department, canteen and stores are examples of cost centers. Normally centers will identify with physical areas of the organisation. A stores cost center is a physical area in which materials are kept, while awaiting issue to production. A center may also not be identifiable with a physical area. The finance cost center will gather together all the costs of raising finance for the business, other than from owners or shareholders. It is a function of the administration department, and cannot be identified with a physical area of the business. Where a cost center has a product which is being manufactured, it is known as a product center. Examples are a machine shop which is machining parts for assembly into the saleable product in an assembly shop. Where a center has a product that is saleable, thus giving rise to an income, it is also known as a profit center. It is capable of showing a profit or loss on its overall activities. Cost allocation The management accountant's task is to allocate the many, diverse overheads, onto the cost of each product manufactured. It is a major task requiring the use of many different bases of allocation. The allocation of direct cost to a product can be precise. In the case of overhead allocation an element of logical guestimation enters.
Exercise 97. Translate into Ukrainian the following words and word-combinations. Direct costs, indirect costs, overhead, recovery, a measurable increase in direct costs, a measurable decrease in direct costs, raw material, to be of sufficient size, to vary with, to merit, remuneration, to be based upon piecework, the costs involved in running a business, the costs of running the works organization, to be saleable, a profit center, to split up into cost centers, a maintenance department, to gather together all the costs of raising finance for the business, to be identified with a physical area of the business, logical questimation, two-fold process, profit centers, to load the overheads onto each product passing through the center.
Exercise 98. Name the following definitions. A natural substance which is used to make smth else; any of the parts of which smth is made; careful study or investigation, esp. in order to discover new facts or information; the money (finance) used or needed to support an activity, project, etc.; an owner of shares in a business company; fit for sale or that sb. will want to buy; different kinds; a place where goods or services are sold to the public; exact, particular.
Exercise 99. Complete these sentences according to the information in the text 14. 1. The largest element of direct costs is usually … . 2. All raw material costs are included in the direct costs of a product except …. 3. Overhead is a general term applied to all costs …. 4. A stores cost center is a physical area in which … . 5. Where a cost center has a product which is being manufactured, it is known as … . 6. Where a center has a product that is saleable, thus giving rise to an income, it is also known as … . 7. The management accountant's task is to … .
Exercise 100. The ideas of Paragraph "Cost allocation" are listed below but not in the correct order according to the text. Number them in the order they occur in the text 14.
Exercise 101 . Say which of the following statements are not true about overheads. 1.They include all costs of a business. 2.They exclude those costs which can be directly related to a product's production. 3.They relate to certain aspects of the business only. 4. They are difficult to relate to individual products of a company. Exercise 102 . Put questions to the text and ask your partner to answer them. Exercise 103. Learn the following words and word combinations.
Exercise 104. Read the text, write a plan of the text in the form of statements. Get ready do retell the text according to the plan. |
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