Professional Documents
Culture Documents
Long - Lived Assets
Long - Lived Assets
PPTX
Long
Long -- Lived
Lived Assets
Assets
Intangible Assets
Consist of:
legal rights
processes
name recognition
patient lists
contracts
licenses
goodwill
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GAAP
GAAPrules
rules and
andissues
issues regarding
regardingLong
LongLived
LivedAssets
Assets
Purchase - companies must record plant assets at cost.
Cost consists of all expenditures necessary to acquire an
asset and make it ready for use.
Improvements, called capital expenditures,
are added to the asset account. Extend
costs
Called
revenue expenditures.
Record Depreciation or Amortization Expense
each year if asset has a limited life.
Determining
Determiningthe
theCost
Cost of
of Plant
PlantAssets
Assets
Land
Determining
Determiningthe
theCost
Cost of
of Plant
PlantAssets
Assets
Land Improvements
Limited useful lives.
Expense (depreciate) the cost of land improvements
over their useful lives.
Examples are driveways,
parking lots, fences,
landscaping, and
underground sprinklers.
Determining
Determiningthe
theCost
Cost of
of Plant
PlantAssets
Assets
Buildings
Purchase costs:
Purchase price, closing costs (attorneys fees, title
insurance, etc.) and real estate brokers commission.
Remodeling and replacing roof, floors, electrical wiring, and
plumbing.
Construction costs:
Contract price plus payments for architects fees, building
permits, interest and taxes during construction period and
excavation costs.
Chuck Co.
Internatio
nal
headquart
ers
5
5
Determining
Determiningthe
theCost
Cost of
of Plant
PlantAssets
Assets
Equipment
Determining
Determiningthe
theCost
Cost of
of Plant
PlantAssets
Assets
Stays on balance sheet at cost less accumulated
This is
Depreciation
Depreciation rules
rulesin
in general
general
GAAP allows choice of several depreciation methods.
- Choose separate method for each asset category
Goal is to reflect best measure of assets
contribution to operations over its useful life.
Depreciation
Depreciation Methods
Methods-- SL
SL
A
N
N
U
A
L
E
X
P
E
N
S
E
Y E A R OF ASSET LIFE
I.
Rate
1/(useful life)
Depreciation
Depreciation Methods
Methods-- DDB
DDB
A
N
N
U
A
L
E
X
P
E
N
S
E
Y E A R OF ASSET LIFE
Base
Rate
2 / (useful life)
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Depreciation
Depreciation Methods
Methods-- Units
Units
A
N
N
U
A
L
E
X
P
E
N
S
E
Base
Rate
11
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Depreciable
Cost
x
Rate =
Annual
Expense
Accum.
Deprec.
Book
Value
2012
$ 27,000 *
20% *
$ 5,400
$ 5,400
$ 24,600
2013
27,000
20
5,400
10,800
19,200
2014
27,000
20
5,400
16,200
13,800
2015
27,000
20
5,400
21,600
8,400
2016
27,000
20
5,400
27,000
3,000
Cost
30,000
-Acc Depr (5,400)
2 x SL
2012
30,000
40%
2013
18,000
2014
Year
Annual
Expense
Accum.
Deprec.
Book
Value
$ 12,000
$ 12,000
$ 18,000
40
7,200
19,200
10,800
10,800
40
4,320
23,520
6,480
2015
6,480
40
2,592
26,112
3,888
2016
3,888
40
27,000
3,000
888*
* Annual expense in last year limited. Book value cant be lower than estimated salvage value.
14
Miles
Used
Rate Per
Mile
=
2012
15,000 *
$ 0.27*
2013
30,000 *
2014
Annual
Expense
Accum.
Deprec.
Book
Value
$ 4,050
$ 4,050
$ 25,950
0.27
8,100
12,150
17,850
20,000 *
0.27
5,400
17,550
12,450
2015
25,000 *
0.27
6,750
24,300
5,700
2016
10,000 *
0.27
2,700
27,000
3,000
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GAAP
GAAPRule
Rulerequiring
requiring Revised
Reviseddepreciation
depreciationAmount
Amount
were
inaccurate.
Use Book Value at date of change
Fix
Or pair
Re ily
Da
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Example:
Original Cost = 250,000, Salvage = 50,000, Life =
10 Years, SL used.
After 4 years, revise total life to 6 years
Revised salvage = 0.
Years 1, 2, 3, 4 : Depreciation Expense = (250,000 - 50,000) / 10
= 20,000 per year.
Years 5, 6:
Depreciation Expense
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Recording
Recordinggain
gainor
orloss
losson
onDISPOSAL
DISPOSAL
18
Example: Disposals
Assume that Chuck Co in the previous example sells the truck
at the end of 2013 for cash of $20,000. Also assume straight
line depreciation was elected. (accumulated = $10,800)
Cash
20,000
Accumulated depreciation
10,800
Trucks
30,000
Gain on disposal
800
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Example: Disposals
Variation: Assume that the sales price was instead only
$10,000.
Cash
10,000
Accumulated depreciation
Loss on disposal
Trucks
30,000
10,800
9,200
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Intangible
IntangibleAssets
Assets
Goodwill
License
Trademark
Franchise
Patent
Copyright
21
GAAP
GAAPrules
rulesand
andissues
issuesregarding
regardingIntangibles
Intangibles
22
Miscellaneous
Miscellaneous
Example:
Lease
Buy
Assets $1,000,000
$11,000,000
Liabilities
100,000
10,100,000
Debt/assets
10%
91.8%
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Miscellaneous
Miscellaneous
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Miscellaneous
Miscellaneous
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