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Bus-121a material Test 5

Bus-121a material Test 5 - Test 5 Long Term Liabilities...

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Test 5 Long Term Liabilities - 11/12/09 Assets – future benefits Capitalizations recording money spent as an asset on the balance sheet Can only be capitalized when the asset is improved, repairs are expenses *Capitalized when a new asses is purchased Purchase price Shipping/Freight Insurance Taxes or Duties Ready For use (include in Total Cost) – everything is capitalized Installation Training and Testing Customization *GAAP says: The cost of an asset includes any money spent to make the asset ready for use Capitalize Asset Improvements – extends useful life of assets, enhance use of assets Repairs And Maintenance Expensed because they are cost we assume will occur when we purchased the asset Assumed when estimating asset useful life Exceptions to Capitalization: Advertising – (exception) – expensed bc there is no way of calculating the value it will bring Research & Development – (exception) Purchase of Land Land (not depreciated): Purchase price Closing cost (real estate transaction fees) Special government assessments (sewage, power lines, drainage, etc) Cost of removing an existing building on land (we never used) *Land – does not get depreciated but stuff on it does Land Improvements – (depreciated): fences, signs, parking lots, driveway Building: Purchase price/costing cost Interest on loans to finance construction Demolition of a previously used building Renovation of a building before use Ex: “Capitalization of Long Term Asset Questions” Sheet A B C
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Lump Sum Purchase Purchase Multiple Assets for one price Portion of Value Equation Ex: Professors example – notes Ex: look at “Cap of Long Term Asset Questions” sheet D. part of land Asset Exchanges Exchanges of assets (not cash or financial assets) Ex: Look at “Capitalization of Long Term Asset Questions” sheet 2a 2b 2c 2d Commercial Substance The company expects a change in future cash flows as a result of the transaction And The change is significant; relative to the fair value of the assets exchange *If: the asset exchange lacks commercial substance, then no gain
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