PRESENTATION REPORT

1. Outline submission date: May 22th, 2021

2. Class: K57C (Group No.1)
3. Group members

STT HỌ VÀ TÊN MSSV NOTE ORD. NUMBER

1 Lìu Long Khả 1801035360 14

2 Nguyễn Thành Lâm 1801035404 17

3 Trần Thị Hồng Phúc 1801035688 28

4 Nguyễn Phạm Thúy Quỳnh 1801035743 32

5 Đoàn Xuân Thủy 1801035892 39

6 Lê Thị Hồng Vy 1801036052 Leader 44

4. Content
a. Topic: Unit 7-DEPRECIATION AND AMORTIZATION
b. Division of tasks

Resul
Member Task Speaker t
Prepare and present part 1 and part 2 + Speaker
Lìu Long Khả 10/10
Combine team’s powerpoint 1
Nguyễn Thành Prepare and present part 5 + Combine Speaker
10/10
Lâm team’s powerpoint 6
Trần Thị Hồng Prepare and present part 4.2 + Combine Speaker
10/10
Phúc team’s word 4
Nguyễn Phạm Speaker
Prepare and present part 4.3 + Host game 10/10
Thúy Quỳnh 5
 Prepare and present part 4.1 + Combine Speaker
Đoàn Xuân Thủy 10/10
team’s word 3
Speaker
Lê Thị Hồng Vy Prepare team’s outline and present part 3 10/10
2

c. Comprehensive questions and excersises

1. Compare three words: “Fixed Assets, Current Assets and Non-current assets”?
2. Why are assets depreciated over time?
3. What principle under GAAP is used for this case?
4. How are assets depreciated for tax purposes?
5. Can you name examples of intangible asset and the situation using it?
6. Do you recognize all the intangible assets in the Statement of Financial Position?
7. Why are intangible assets amortized over time?
8.How many methods of depreciation do you know? And what are they?
9.How does the company estimate the salvage value and useful life of asset?
10. What do you think that straight line depreciation has another formulas?
11. Jammy holding company purchases a machine for 60 millions on 1/1/2018. It has an
estimated salvage value of 10 millions and a useful life of five years. The company
calculates the annual straight-line depreciation for the machine. What is the carrying
value of the machine at 1/1/2018?
12. Besides, do you think straight line depreciation has disadvantages? Explain?
13. What are the methods of accelerated depreciation?
14. What are the advantages and disadvantages of accelerated depreciation?
15. In which cases is accelerated depreciation used?
16. What are the disadvantages of using time-based depreciation methods, for example
the straight-line basic method?
17. A company buys a car on 31 August 20X0 for $100,000. It has a useful life of ten
years. The company's accounting policy is to charge depreciation yearly using the
straight-line method
a. Calculate the amount of depreciation expense per year.
b. Assume the car above is estimated to go 50,000 miles in its lifetime. The residual value
after 10 year of this car is 20,000 dollar. Calculate the per-mile depreciation amount and
the depreciation expense in 20X1, know that the distance traveled by this car in 20X1 is
10 miles, and the company's accounting policy is to charge depreciation yearly using the
annuity method.
18. Which types of assets are best depreciated using Annuity method?
19. What causes the difference in viewpoint between accountants and managers about
depreciation?
20. What characteristics of assets such as goodwill or land make the depreciation
method unsuitable?
21. Can we combine depreciation method and revaluation method?
22. Suppose that you are looking to invest in telecommunications, if you look at the
financial statements of two companies, which one would you prefer to invest in?
 PRESENTATION CONTENT
A. OUTLINE - VOCABULARY LIST
Vocabulary:

Vietnamese
English words English meaning
meaning
Asset cost the original value of the asset plus any additional Giá gốc
costs required to get the asset ready for its intended
use.
Residual this is the value of the asset once it reaches the end of Giá trị thu hồi
value its useful life.
= Salvage
value
= Scrap value
Depreciation this correlates to the percentage the asset will
factor depreciate by each year.
Accelerated the depreciation of fixed assets at a faster rate early Khấu hao
depreciation in their useful lives. nhanh
Distort change facts, ideas, etc. so that they are no longer Bóp méo
correct or true
Shield a person or thing used to protect somebody/ Lá chắn
something, especially by forming a barrier
Obsolete = no longer used because something new has been Lỗi thời
out of date invented
Carrying an accounting measure of value in which the value of Giá trị còn lại
value an asset or company is based on the figures in the
respective company's balance sheet. For physical
assets, such as machinery or computer hardware,
carrying cost is calculated as (original cost -
 accumulated depreciation)
Trade secrets Trade secrets are intellectual property rights on Bí mật kinh
confidential information of the company doanh
Trademarks a word or symbol that represents a company. Nhãn hiệu
Trade dress the visual appearance of a product or its packaging Trang phục
(or even the design of a building) thương mại
Finite life a lifespan which is limited to a certain number of Thời gian sử
years, months, weeks or days dụng hữu hạn
Franchise a legal, binding contract between a franchisor and thỏa thuận
agreement franchisee. nhượng quyền
thương mại
Impairment a reduction in the value of a company's asset Sự suy giảm
giá trị
Tax shield Lá chắn thuế
A tax shield is a reduction in taxable income for an
individual or corporation achieved through claiming
allowable deductions

Goodwill Lợi thế thương

Goodwill is the portion of the purchase price that is
mại
higher than the sum of the net fair value of all of the
assets purchased in the acquisition and the liabilities
assumed in the process.
 B. DETAILS
1. Fixed Assets
1.1. Definition
A fixed asset is a long-term tangible piece of property or equipment that a firm
owns and uses in its operations to generate income. Fixed assets are not expected to be
consumed or converted into cash within a year. Fixed assets most commonly appear on
the balance sheet as property, plant, and equipment (PP&E). They are also referred to
as capital assets.
1.2. Examples of Fixed Assets
Fixed assets can include buildings, computer equipment, software, furniture, land,
machinery, and vehicles. For example, if a company sells produce, the delivery trucks it
owns and uses are fixed assets. If a business creates a company parking lot, the parking
lot is a fixed asset. Note that a fixed asset does not necessarily have to be "fixed" in all
senses of the word. Some of these types of assets can be moved from one location to
another, such as furniture and computer equipment.
+ Fixed Assets and Current Assets
Both current assets and fixed assets appear on the balance sheet, with current
assets meant to be used or converted to cash in the short term (less than one year) and
fixed assets meant to be used over the longer term (more than one year). Current assets
include cash and cash equivalents, accounts receivable, inventory, and prepaid expenses.
Fixed assets are depreciated, while current assets are not.
+ Fixed Assets and Non-Current Assets
Fixed assets are non-current assets. Other noncurrent assets include long-term
investments and intangibles. Intangible assets are fixed assets to be used over the long
term, but they lack physical existence. Examples of intangible assets include goodwill,
copyrights, trademarks, and intellectual property. Meanwhile, long-term investments can
include bond investments that will not be sold or mature within a year.
2. Depreciation
2.1. Definition
Depreciation is an accounting method of allocating the cost of a tangible or
physical asset over its useful life or life expectancy. Depreciation represents how much of
an asset's value has been used up.
2.2. Example
Depreciation is an accounting convention that allows a company to write off an
asset's value over a period of time, commonly the asset's useful life. Assets such as
machinery and equipment are expensive. Instead of realizing the entire cost of the asset in
year one, depreciating the asset allows companies to spread out that cost and generate
revenue from it. In other words, each year, the asset is put to use and generates revenue,
the incremental expense associated with using up the asset is also recorded.
For example, if a company buys a piece of equipment for $50,000, it could
expense the entire cost of the asset in year one or write the value of the asset off over the
asset's 10-year useful life. In addition, the company's accountants estimate the annual
depreciation expense to be $5,000. Assume the company's net income per year (excluding
depreciation expense) remains constant at $500,000.
In case 1: The company expense the entire cost of the asset in year one
Year 1 2 3 …. 10
Net income 450,00 500,000 500,00 …. 500,000
0 0
In case 2: The company write the value of the asset off over the asset's 10-year
useful life
Year 1 2 3 …. 10
Net income 495,00 495,000 495,00 …. 495,000
0 0
 This is why business owners like depreciation. Most business owners prefer to
expense only a portion of the cost, which boosts net income.

3. Intangible assets & Amortization

3.1. Intangible assets
3.1.1. Definition
An intangible asset is an identifiable asset without physical existence. That means
you cannot touch them but they have a current and future value. A business can either
develop these assets internally or can acquire them in a business combination.
1.2. Examples of intangible asset
Intangible assets can include goodwill*, copyrights, or intellectual property, …
There are more specific examples like:
 patented technology, computer software, and trade secrets
 trademarks, trade dress, franchise agreements, internet domains
 video and audiovisual material (e.g. film & broadcasting copyright)
 customer lists, databases
 license (e.g. fishing license, taxi license.)
For example, Coca-Cola estimated its brand value (or goodwill) to be worth over
$50 billion. But a market research company evaluates the brand to be worth only $30
billion. The price cannot be reliably measured, so $50 billion cannot be recognized
anywhere on the balance sheet.
*The goodwill can only be recognized in the balance sheet when it is acquired in a
business combination.
3.2. Amortization
When an asset brings in money for more than one year, you want to write off the
cost over a longer time period. We use amortization to match an asset’s expense to the
amount of revenue it generates each year
3.2.1. Definition
Amortization is the process of expensing the cost of an intangible asset over their
estimated "useful economic lives" so as to reflect their consumption or other decline in
value as a result of use or the passage of time.

3.2.2. Types of amortization

Intangible assets are typically expensed according to their respective life expectancy.
 Intangible assets with finite lives (E.g.: software, licenses)
The cost less residual value of an intangible asset should be amortized on a straight-line
basis over their finite life.
 Intangible assets with indefinite useful lives (E.g.: brands)
An intangible asset with an indefinite useful life should not be amortized. It is
reviewed each year for impairment. If an impairment has occurred, then a loss must be
recognized.
SUM UP & COMPARE
Depreciation Amortization

Both apply to fixed assets

Apply to which assets intangible assets tangible assets

Straight-line straight-line method

Methods method accelerated method

Impairment test annuity method

4. Methods of depreciation:
4.1. Straight line depreciation:
4.1.1. Definition:
 Straight line depreciation is a common method of depreciation for allocating the
cost of a capital asset. With the straight line depreciation method, the value of an asset is
reduced uniformly over each period until it reaches its salvage value.
4.1.2. Formula:
Cost of the asset−Estimated salvage value
Annual depreciation expense =
Estimated useful life of the asset
Where: Cost of the asset is the purchase price of the asset
Estimated salvage value is the value of the asset at the end of its useful life

Estimated useful life of asset represents the number of periods/years in which the
asset is expected to be used by the company.

4.1.3. Example
Jammy holding company purchases a machine for 60 millions on 1/1/2018. It has
an estimated salvage value of 10 millions and a useful life of five years. The company
calculates the annual straight-line depreciation for the machine. What is the carrying
value of the machine at 1/1/2018?
*Answer:
Depreciation expense for 2 years = ¿) x 2
= (60-10)/5 X 2 =20 millions
Carrying value=Cost of asset–Depreciation expense for 2 years=60-20 = 40
millions
4.1.4. Pros and cons of using straight line depreciation
* Pros:
+ Simplicity: The straight line method is the simplest method for calculating
depreciation. An ordinary person can understand this method easily. The calculations for
this method are very easy and simple.
+ Assets can be written off completely: Under this method, assets can be written
off completely (i.e. to zero). As the depreciation in this method is calculated on the
original cost of the asset at the constant rate, so the value of an asset is equally spread out
over the useful life of the asset.
+ Total depreciation charge is known: The total amount of depreciation charge can
be easily calculated by multiplying the yearly amount of depreciation with the total
number of the years the asset is under use.
+ Suitable for small businesses: This method is suitable for small businesses.
Because this method is easy and simple, therefore it suits the firms which are small in
size.

* Cons
+ Pressure on final years: In the final years of the asset’s life, it bears more repairs
and maintenance charges as compared to the initials years. But, the depreciation charge is
equal for all years. this put the undue pressure on the asset in final years.
+ Does not have the provision of replacement: Under this method, there is no
provision for the replacement of the asset. The business retains the depreciation charge
and uses it to perform regular affairs. The firm has to make the efforts to arrange the
funds for replacing the asset.
+ Interest loss: Under this method, the firm does not invest the depreciation charge
from the asset outside the firm, therefore do not receive any interest.
+ Illogical method: This method is considered as an illogical method because it
seems illogical to depreciate the asset on the original cost when the balance of the asset is
declining every year.
+ Not useful for an asset with a long life and more value: The straight line
depreciation method is not useful in case of the assets where the additions and expansions
can be made such as land, plant, and machinery, or buildings. Also for the assets that are
expansive and have more value, this method is not suitable.
4.1.5. Applicability:
 Straight-line depreciation is applied to most assets. Enterprises choose the straight-
line method of depreciation if revenue is generated mainly from fixed assets during the
useful life of the asset.
4.2. Accelerated depreciation:
4.2.1. Sum-of-years-digits depreciation method:
4.2.1.1. Definition:
The sum-of-years-digits depreciation method is an accelerated method of
depreciation in which depreciation in initial years is more than later years.
4.2.1.2. Formula:
Depreciation expense = Depreciable Base * Remaining Useful Life of AssetSum
of years digits (YSD)
Where: -Depreciable Base = Cost of Asset - Residual Value
-SYD is the sum of the useful life year’s digits
-YSD = n*(n+1)2
-n: the useful life of the asset in years.
4.2.1.3. Example:
Suppose Company A has an asset costing $45,000. It has a residual value of
$5000, while its useful life is 4 years. Calculate depreciation expense by using the sum-
of-years-digits depreciation method.
Depreciation Remaining Depreciation Depreciation Book
Year
Base life fraction Expense value
(6)=(2)-
(2) (3) (4)=(3)/(1) (5)=(2)*(4)
(5)
1 40,000 4 4/10=40% 16,000 24,000
2 40,000 3 3/10=30% 12,000 12,000
3 40,000 2 2/10=20% 8,000 4,000
4 40,000 1 1/10=10% 4,000 0
YSD=10
100% 40,000
(1)
4.2.2. Reducing balance depreciation method:
4.2.2.1. Definition:
The reducing balance method of depreciation, also known as declining balance
depreciation or diminishing balance depreciation, is a way of accounting for assets over a
period of time.
However, the percent rate is not calculated on the cost of an asset but on the book
value of the asset, which in turn is calculated by subtracting depreciation from its cost.
4.2.2.2. Formula:
Depreciation expense = (Net book value – Residual value) * Depreciation factor
(rate %).
Subtract the depreciation charge from the current book value to calculate the
remaining book value.
4.2.2.3. Example:
A business purchases a non-current asset at a cost of $10,000. The business use the
reducing balance method to depreciate the asset and calculates that the rate of
depreciation should be 40% of the reducing amount of the asset.
Then, depreciation in year 1: 10,000 x 40% = 4,000 => Carrying amount at the
end of year 1: 6,000
Depreciation in year 2: 6,000 x 40% = 2,400 => Carrying amount at the end of
year 2: 3,600.
4.2.3. Pros and cons of using accelerated depreciation:
*Pros:
 This method is more practical as it assumes more usage in initial years.
 Maintains balance between depreciation and repair cost.
 It also ensures that the earning do not get distorted.
 Provides company with tax shield in the inital years.
*Cons:
 It charges more depreciation in initial years.
 Hence profit in initial years is less as compared to following years.
  This method can indirectly influence the cash flows.
4.2.4. Applicability:
 Better to go with this method when asset is more productive in the earlier years
than in the later years
 Better to go with this method when asset becomes obsolete quickly
4.3. Annuity Method:
4.3.1. Why we need this method:
The above depreciation methods work in this way: calculate the amount of
depreciation every year, and each year the company subtract that amount of depreciation
from the cost.
Do you see a minus point in that method? That is, even if that asset was not used
in that year, the company still depreciates that asset at a given rate, and any changes of
the amount of depreciation need to be calculated in advance.
For example: Ms. Tuyen is the CEO of a company, and her company buys a very
luxurious Audi to drive her to work.
 Cost of Audi A1 city carver: $100,000
 Useful life: 10 years
=> Depreciation expense per year: $10,000
But the covid 19 outbreaks and the company decided to work from home, the car
now still in the garage
So even if the car doesn't work, according to the above calculation, the company
still have to records $10,000 of depreciated expense => unreasonable.
=> There is another method to overcome this limitation of above method of
depreciation: Annuity Method
4.3.2. Definition:
Annuity depreciation methods are usually not based on time, but on a level of
Annuity. This could be miles driven for a vehicle, or a cycle count for a machine. When
the asset is acquired, its life is estimated in terms of the level of activity or annuity.
4.3.3. Formulas:
 Depreciation value of each level of activity = (Cost - residual value)/level of
Annuity
4.3.4. Example:
Assume the Audi of miss Tuyen above is estimated to go 50,000 miles in its
lifetime. The residual value after 10 year of this car is 20.000 dollar.
The per-mile depreciation rate is calculated as follows:
(100.000 - 20.000)/50,000 miles =1,6 dollar per mile
Each year, the depreciation expense is then calculated by multiplying the number
of miles driven by the per mile depreciation rate.
in 2020: 10 miles
=>depreciation expense = 1,6x10 = 16 dollar
4.3.5. Applicability:
Which types of assets are best depreciated using Annuity method?
=>Assets that are not used regularly in a financial year
=>The level of activity of these assets is easy to measure
Ex: The machine ran for about 100 laps and then being covered by a blanket for
the rest of the year.
4.4. Sum up and differentiate 4 methods:
All four depreciation methods above help the company calculate the depreciation
expense in the year, and depending on the type of asset, the company considers which
depreciation method to apply.
There are some differences between 4 methods:
Method Straight Sum-of- Reducing Annuity
line basic years- balance
Differences digits basic

Base Time Level of activity

Depreciation rate permanent descend descend Depreciation value

 of each level of
activity
Depreciation expense cost – cost – book value Depreciation value
(*I’m talking about the residual residual of the asset of each level of
number that we multiply it value value activity x number
by depreciation rate to of activities
calculate depreciation
expense

5. Extended content about depreciation and amortization:

5.1. The role of depreciation and armortization for businesses:
5.1.1. Depreciation is the company's tax shield:
Depreciation is an expense, which is deducted from earnings before tax to
calculate earnings after tax. As a result, depreciation helps businesses save a large
amount of CIT expense and companies can use this cash to invest or increase value for
shareholders.
For example, Vinamilk's depreciation expense in 2020 is approximately 1.3 trillion
VND, the corporate income tax rate in Vietnam is 20%. Therefore, the cash that
Vinamilk saves is 260 billion VND.
5.1.2. Depreciation is considered as a recovery of companies:
Under the accountant’s standpoint, depreciation is an expenditure. However, it is a
non-cash expense. Therefore, from a manager's point of view, enterprises have to spend a
large amount of money to invest in that to create an fixed asset, depreciation is the
gradual recovery of this initial investment and it can be seen as a source of capital for
reproduction.
5.2. Revaluation method:
5.2.1. Definition:
 Depreciation is the simplest method of measuring the wear and tear of fixed assets.
However, there are some special assets such as land, goodwill or patents that do not
degrade in value over time. Therefore, the depreciation method in this situation is not
approriate and that is the reason why the revaluation method was born.
The main principle of the revaluation method is that the fixed asset must be
revalued at fair value annually or as soon as there are reasonable indications of an
impairment in the value of the fixed asset. The change in the value will be adjusted to the
asset and charged against the profit and loss account for the period.
5.2.3. Pros and cons of revaluation method:
In comparison with the depreciation method, the revaluation method is said to
have more advantages. Firstly, it is more efficient and effective as it provides more useful
decision making information to users as the asset, an item of property, plant and
equipment are accounted at the revalued amounts which is more likely to provide a true
reflection of price in the local area. Secondly, the revaluation model only requires
reassessing the assets value after every period. It need not estimate the useful life or the
residual value after disposal of the asset to calculate the depreciation expense. Moreover,
under revaluation model effectiveness of management is determined by the profit.
Nevertheless, revaluation model also has its limitations. First of all, figures used to
compute the carrying amount of the asset are subjective, it is based on the opinion of an
individual appraiser rather than objective figures or standards. Moreover, revaluation
model is more time consuming and costly when compared to depreciation model. Those
are the reasons why in Vietnam, this method has not been widely applied.
5.3. The position of depreciation on the financial statements of the company
 The two pictures above are the consolidated income statement of two corporations
in the telecommunications industry, Orange (France) and Viettel (Vietnam) in 2019.
These two companies apply two different accounting standards, IFRS (Orange) and VAS
(Viettel). Therefore, there are some differences in the presentation and disclosure of
information in the two financial statements.
 The most basic difference we can see is that Orange has presented their
depreciation expense as a separate item in consolidated income statement. In contrast,
Viettel only charges it as a part of selling or administrative expenses and presents it in
the Notes. The main cause of the difference comes from the regulation of the two
accounting standards. Subject to VAS, businesses will have to present items according to
an existing template. On the contrary, in addition to items that are required to be
presented, IFRS allows businesses to present extra items that they consider necessary. In
this case, Orange added the depreciation expenses item because they considered it is
material and it could influence the decisions of their shareholders and investors.