Long-Lived Assets ●Understand the different depreciation methods and their impact on the financial statements.●Appreciate when and where judgement and estimations are most influential.●Understand how the matching principle influences the following accounting decisions: (a) capitalize versus expense and (b)allocating historical costs to future revenues.
Long-Lived AssetsThere are two basic categories of long-lived assets:●Property, plant and equipment (PP&E)Physical substanceUsed in the operating activities of a companyHave a life of more than one year●Intangible AssetsNo physical substanceMay have high degree of uncertainty regarding future valueHave a life of more than one year
Intangible Assets - Goodwill●When one company acquires another company (not necessarily full acquisition), goodwill is created.●Goodwill = Purchase price – book value of the shares acquired●Goodwill was amortized until SFAS142 came along.Effective for fiscal year beginning after Dec.15,2001, good will is no longer amortized. Instead, an impairment test is run each period to decide whether to write-off goodwill.
Long-Lived Assets -- IntelProperty, plant and equipment. Property, plant and equipment are stated at cost. Depreciation is computed for financial reporting purposes principally by use of the straight-line method over the following estimated useful lives: machinery and equipment, 2–4 years; land and buildings, 4–40 years.
Property, Plant, and Equipment (PP&E)Matching Principle Cash DisbursementB/SCapitalize amount as fixed assetsB/SDepreciation is treated as inventory cost (overhead)I/SRecognize COGSI/SDepreciation is treated as period expenseRevenue recognized, trigger matchingNon-factoryFactory