fixed asset - FixedAssetMeasurement:...

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Click to edit Master subtitle style Fixed Asset Measurement:  Estimation and Allocation Dr. James Gong
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Agenda n Cost of fixed asset n Self constructed asset = capitalization of interest n Subsequent costs n In class practice problem: interest capitalization n Asset depreciation n Asset disposition n Asset exchanges n Gain or loss on asset disposition
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n Definition: Long-lived assets acquired for  operations, not for resale. n Subject to depreciation (except land). n Physical presence (as opposed to  intangibles). Property, Plant, and Equipment
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Plant Assets Plant Assets as a Percent of Total Assets 5% 51% 59% 78% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% eBay Wal-Mart Anheuser- Busch McDonald's
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4 Measurement Principle n The  historical cost principle  is used to value  assets at the date of acquisition. n Cash or cash equivalent price  used to carry asset on  books. n Any “normal” or “routine” expenditure  to get an asset  in place and functioning is part of the cost of the  asset. 
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How Much to Recognize? n How much does the entrepreneur pay for the new  truck? n Cash paid: $30,000-2,000-4,500= $23,500 n Old truck given up:$ 3,000 n Total: $26,500 
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How Much to Recognize? n Assume an entrepreneur operates his business in his  garage. He recently bought a new truck through trade-in  of an old truck. The  list price  of the truck is $30,000. The  dealer offers $2,000  discount . The  old  truck is valued at  $3,000 by the dealer for  trade-in . The entrepreneur gets  voucher  of $4,500 under the “Cash for Clunkers”  program.  n How much does the entrepreneur  pay  for the new truck?
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How Much to Recognize? n What is the historical cost of the new truck?  n Current   accounting standards n Historical cost  = assets  given up  to acquire the new truck: n Cash paid : $30,000-2,000- 4,500 = $23,500 n Old truck given up: $ 3,000 n Total:  $26,500  New truck $26,500 Cash $23,500
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How Much to Recognize? n What is the historical cost of the new truck?  n Market value (fair value approach) n Historical cost  market value  of the assets acquired:  $28,000 n Recognize the gain from disposing the old truck n Proceeds: $4,500 n Old truck given up: $3,000 n Gain: $1,500  New truck $28,000
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n Purchase price + closing fee + attorney’s fees n Cost to demolish existing structure, cleanup. n Proceeds from salvage are an offset to the cost. n Land improvements with an indefinite life Land improvements with separate lives depreciated  separately. Cost of Land
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This note was uploaded on 09/25/2010 for the course ACCY 302 taught by Professor Chen during the Fall '09 term at University of Illinois at Urbana–Champaign.

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fixed asset - FixedAssetMeasurement:...

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