302Chapter 12 notes

302Chapter 12 notes - CHAPTER 12 I Investments in...

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C HAPTER 12 I Investments in Noncurrent Operating Assets—Acquisition I L EARNING O BJECTIVES 1. Identify those costs to be included in the acquisition cost of different types of noncurrent operating assets. C The cost of tangible noncurrent operating assets includes the original purchase price or equivalent value as well as any other expenditures required in obtaining and preparing the asset for its intended use. C Intangible noncurrent operating assets are also generally recorded at cost. The cost is the purchase price if copyrights, patents, or trademarks are purchased from another company. For internally generated intangibles, the cost often includes only the actual legal and filing costs, as well as any cost to successfully defend the rights in court. 2. Properly account for noncurrent operating asset acquisitions using various special arrangements, including deferred payment, self-construction, and acquisition of an entire company. C Basket purchase . Acquisition cost is allocated to the various assets based on the relative fair values of the assets. C Deferred payment . The acquisition is recorded at the discounted present value of the payments. C Leasing . Property leased under a capital lease is recognized as an asset; property leased under an operating lease is not included in the balance sheet. C Exchange of nonmonetary assets . The transaction is recorded at the fair value of the asset received or the asset given, whichever is more clearly determinable. C Acquisition by issuing securities . The transaction is recorded at the fair value of the asset acquired or the securities issued, whichever is more clearly determinable. C Self-construction . The cost of self-constructed assets includes an allocation of overhead and the cost of interest incurred to finance the construction. The amount of capitalized interest is an estimate 1
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of interest that could have been avoided if the construction expenditures had been used to repay loans instead. C Acquisition by donation or discovery . Assets received as donations are recorded as revenue in an amount equal to the fair value of the assets. Discovered assets are not recognized. C Acquisition of an entire company . A business combination may be accounted for as either a pooling of interests or a purchase. In a purchase, acquired assets are recorded at their fair values, and any excess is recognized as goodwill. Any negative goodwill amounts are first subtracted from the recorded amounts of acquired noncurrent assets. 3. Separate costs into those that should be expensed immediately and those that should be capitalized, and understand the accounting standards for research and development and oil and gas exploration costs.
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302Chapter 12 notes - CHAPTER 12 I Investments in...

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