![]() Since you divide the 6000 amount by 12 months (the lease’s term in months), you have to pay 500 per month before any extra fees and taxes. Because of this, you’ll pay 6000 for the vehicle’s depreciation since it’s 30,000 minus the residual value. Because a recognized intangible asset should be amortized over the period during which the asset will contribute both directly and indirectly to the expected future cash flows of the reporting entity, it is appropriate for the reporting entity to consider its own assumptions. The residual value for the vehicle at the end of the lease term will be 24,000. As discussed in ASC 350-30-55-1C, these instances will likely be limited to situations in which the reporting entity’s own assumptions regarding the period over which the asset is expected to contribute to future cash flows differ from those that would be assumed by market participants in valuing the asset. This is because there may be a difference between the useful life of the asset used for amortization and the period of expected cash flows used to measure the fair value of the asset from a market participant perspective. If this is the case, it is important that the market-participant assumptions be adjusted to consider entity-specific factors. This guidance also directs a reporting entity to consider the assumptions that market participants would use about renewals or extensions (consistent with the highest and best use of the asset by market participants) if it lacks entity-specific experience. One of the considerations in ASC 350-30-35-3 for determining useful life refers to the consideration of the entity’s own historical experience in renewing or extending similar arrangements. Transfers and servicing of financial assets Revenue from contracts with customers (ASC 606) That value also indicates the quality of the product itself and how well it holds up over time. You can make an informed decision about which car retains its value better. Loans and investments (post ASU 2016-13 and ASC 326) Residual value is helpful when you compare buying different vehicles. ![]() Investments in debt and equity securities (pre ASU 2016-13) Insurance contracts for insurance entities (pre ASU 2018-12) Residual value: A leased vehicle’s residual value is estimated at the end of the lease term. Insurance contracts for insurance entities (post ASU 2018-12) Divide by 24 to get a monthly depreciation of 137.50. IFRS and US GAAP: Similarities and differences Subtract the residual value of 16,900 to get your total depreciation of 3,300. ![]() Business combinations and noncontrolling interestsĮquity method investments and joint ventures
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