Accounting: Tools for Business Decision Making, 5th Edition

Published by Wiley
ISBN 10: 1118128168
ISBN 13: 978-1-11812-816-9

Chapter 9 - Reporting and Analyzing Long-Lived Assets - Exercises - Page 487: E9-9


1. The land is not depreciated. 2. The Good will is not an asset like building, patent, machinery etc. 3. Cost of the asset is always its cost price, paid to acquire the asset.

Work Step by Step

1.Depreciation does not apply to land because its usefulness and revenue producing ability remains intact as long as the land is owned. Therefore the journal entry made by the student to depreciate the land is not correct. 2. Goodwill is not amortized because it is considered to have an indefinite life. However, it must be written down if a company determines the value of goodwill has been permanently impaired. 3. The depreciation is applied to allocate the expense of the cost of asset every year. Current market value is not used to increase the recorded cost after acquisition. Therefore the writing them up to the market value is not acceptable.
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