Lecture 21 Long-lived Assets - Long-Lived Assets q Understand the different depreciation methods and their impact on the financial statements Appreciate

Lecture 21 Long-lived Assets - Long-Lived Assets q...

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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 Assets There are two basic categories of long-lived assets: Property, plant and equipment (PP&E) Physical substance Used in the operating activities of a company Have a life of more than one year Intangible Assets No physical substance May have high degree of uncertainty regarding future value Have 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 -- Intel Property, 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 Disbursement B/S Capitalize amount as fixed assets B/S Depreciation is treated as inventory cost (overhead) I/S Recognize COGS I/S Depreciation is treated as period expense Revenue recognized, trigger matching Non-factory Factory

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