Capital Assets

  • Assets that are used in the operation of a company and have useful lives that are longer than one period


  • cost that helps match the cost of a capital asset over the time the asset is used
  • Amortization Expense and Accumulated Amortization are used to record amortization over the period and the useful life of an asset
  • Amounts used to calculate amortization are:
    • Cost – the initial cost of the asset
    • Salvage Value – the estimated value of the asset at the end of its useful life
    • Useful Life – the estimated length of time the asset can be used
    • Units Produced – the estimated number of units the asset can produce through its useful lifetime
    • Methods of Amortization:
      •  Straight Line Method– the same amount is amortized each full period of the asset’s useful life
  • Double Declining Balance Method* – larger amounts are amortized during the earlier years of the asset’s useful life and decreases year after year
    • * salvage is not used in calculations, and be careful not to exceed the total value
  • Units of Production Method*– amortization calculated by the number of units that are produced in each period
    • * Remember to Check if the estimated total units of production is equal to the actual units of production
    • To journalize amortization, debit amortization expense and credit accumulated amortization

Partial Year Amortization:

  • Two methods of amortization
    • Nearest whole month
    • Half year rule: first year is always half a year regardless of time of purchase

Revising Amortization Rates

  • When it is discovered that the original estimate was inaccurate one must change the amortization
    • One revises the rate when:
      • Assumptions are changed
      • The device changed or an addition was made 
      • Example: Ronald has purchased a tickle machine for $1000 on Jan 2nd 2005 and estimates it will have a life of 4 years and have a final salvage value of $100. At 2006 he sprays it with scented lavender adding $225 to the device and increased the life by 1 year. What was the amortization expense in 2006.
      •  (1000-100)/4 = 225
      • 1 * 225 =225
      • ((1000-225)+225))/(4-1+1) = 225


Disposal of Capital Assets

  • Discarding, selling or exchanging assets due to obsolescence or damage


Journalizing Steps

  1. Record amortization expense up to date of disposal
  2. Update accumulated amortization
  3. Remove the balance of disposable asset
  4. Record the cash or account receivable
  5. Journalize any loss or gain from the book value


  • If the asset is fully amortized, and there is no loss, it would be journalized as an example below:
    • Ex, A machine costing $2000, with accumulated amortization of $2000 is discarded on April 17th, 2005.


Apr 17   Accumulated amortization, machine      2000

                                Machine                                                                              2000

                    To record disposal of asset.

  • If the asset is not fully amortized, then record a loss (debit) equal to the book value.     
    • Ex. A machine costing $8000 with accumulated amortization of $6000 on December 31st, 2008 is discarded on July 1st, 2009. The equipment is being amortized for 8 years w/o salvage value.



Jul 1       Amortization expense, machine                                              500        

                                Accumulated amortization, machine                      500

                    To record amortization.


Jul 1       Accumulated amortization, machine                      6500

                Loss of disposal                                                                                1500      

                                Machine                                                                                              8000

                   To record the disposal of machine.


Selling Capital Assets

  • When the value received for the asset sold is greater than its book value, it is a gain.
  • When the value received for the asset sold is less than its book value, it is a loss.
  • Debit: cash received and accumulated amortization
  • Credit: asset cost
    • Ex. Fitness equipment costing $16000 with accumulated amortization of $12000 (on Dec 31st, 2009) is sold on April 1, 2010 for $7000. Annual amortization is $4000 (straight-line).


Apr 1     Amortization expense, equipment                                         1000

                                Accumulated amortization, equipment                                                1000

                   To record amortization.


Apr 1     Cash                                                                                                                      7000

                Accumulated amortization, equipment                                                13000

                                Equipment                                                                                                         16000

                                Gain of disposal                                                                                               4000

                   To record disposal of equipment.

Intangible Assets

Intangible assets serves are rights, privileges and competitive advantage to the owner of these capital assets. Intangible assets as the name suggests has no physical form and are usually acquired for operational use. These assets are also non-current assets, and their useful life is hard to determine due

Examples of Intangible assets:

  • Patents
  • Copyrights
  • Leaseholds
  • Leasehold Improvements
  • Goodwill
  • Trademarks and Trade Names


Amortization for Intangible assets

  • Amortize over a shorter economic/ legal life, and has a maximum of 40years
  • No contra accounts (ie of contra account is accumulated amortization)
  • Amortization account is an expense
  • Use straight line method unless told otherwise


  • Is an exclusive right to a company to manufacture and sell patented goods/ machine
  • When purchased the account “Patents” is debited
  • The cost is amortize over the shorter of its legal life/ estimated useful life



  • Granted by the federal government or by international agreement
  • Gives the owner the exclusive right to publish and sell their artistic work (music, literacy, or art)
  • Useful life: the life of the creator + 50 years (however most copyright has a shorter life)
  • Amortized over its useful life


  • Goodwill is no longer amortized under revised Canadian GAAP
  • The amount by which the amount paid for a company exceeds its market value
  • ONLY purchased goodwill is intangible