Amortized cost's calculation steps
To calculate the amortized cost, you need the following steps:
1. Determine the total cost of assets or liabilities: this includes the actual cost of purchasing assets or liabilities and the direct and indirect costs related to them, such as transportation costs and installation fees.
2. Determine the expected service life or expected service life of assets or liabilities: it refers to the time period during which assets or liabilities are expected to generate economic benefits in the company's business activities.
3. Calculate the amortized cost of each accounting period: divide the total cost by the estimated service life or estimated service life to get the amortized cost of each accounting period.
4. Record amortized cost: According to amortized cost's calculation results, record it in accounting vouchers, so as to accurately reflect the value of assets or liabilities in financial statements.
Advantages of amortized cost
Compared with other calculation methods, amortized cost method has the following advantages:
1. More accurate value of assets or liabilities: amortized cost method can allocate the cost of assets or liabilities to each accounting period within its service life or expected service life, and reflect its value more accurately.
2. Provide more accurate financial statement information: The amortized cost method can provide amortized cost in each accounting period, so that the financial statements can more accurately reflect the value of assets or liabilities and their changes.
3. Easy to track the changes in the value of assets or liabilities: By recording the amortized cost in each accounting period, the changes in the value of assets or liabilities can be clearly tracked, which is convenient for managers to make decisions and analyze.
The Application of amortized cost
The amortized cost method is widely used in accounting practice, especially in the calculation and reporting of long-term assets and liabilities. The following are some common application areas:
1. Amortization of long-term assets: For long-term assets such as houses, machinery and equipment, the amortized cost method can be used to allocate the total cost to each accounting period within its expected service life.
2. Amortization of long-term liabilities: For long-term liabilities, such as bonds and loans. The amortized cost method can be used to allocate the total cost to each accounting period within its expected service life.
3. Amortization of intangible assets: For intangible assets, such as patents and copyrights. The amortized cost method can be used to allocate the total cost to each accounting period within its expected service life.