Weekly Discussion 2

In week 2, I learned about fixed assets and the three depreciation methods.

Fixed assets are the assets the firm uses to produce goods. These are meant keeping in view
the long-term aspect of the firm. It can be land, building, equipment, etc. Fixed assets appear
in the statement of financial position of the company.

The land is the primary asset, whose cost includes the purchase price of the land itself,
brokerage commission, closing cost, property taxes (in arrears), and the clearing cost.
Further, I learned that any cost made towards the betterment of an asset is capitalized,
whereas the cost made toward maintenance is expensed. I found it a bit challenging to
determine the difference between the two while doing numerical, but with more questions, I
gained a good grasp of it.

Then lastly, I understood the salvage value and three depreciation methods – Straight Line,
Units of Production, and Double Declining method. The Straight-Line depreciation method is
the easiest one, and, in this case, the depreciation amount remained the same throughout the
different years. In the Unit-of-Production method, the depreciation amount varies in
accordance with the number of units produced. Lastly, in the Double Depreciation method, I
learned that it permits larger depreciation in the early years. Things got a bit tricky in the
double depreciation method when the concept of ‘Plug’ Value came into the picture. As the
ending asset value cannot be lower than the salvage value, therein, we have to plug the value
to calculate the depreciation amount.

Going through the concepts and understanding them with quizzes and FACC workshops
really help me understand financial concepts, as I haven’t studied accounting before.