ACIS+2115+Chapter+9+Lecture+Fall+2009

ACIS+2115+Chapter+9+Lecture+Fall+2009 - Chapter 9 Reporting...

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Chapter 9 Reporting and Interpreting Long-Lived Tangible and Intangible Assets
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Learning Objective 1 Define, classify, and explain the nature of long-lived assets.
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Tangible Physical Substance Intangible No Physical Substance Will not be used up within the next year Actively Used in Operations Often called “operational assets” Definition and Classification of Long-Lived Assets
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Tangible Assets Have Physical Substance Land Assets subject to depreciation Buildings and equipment Furniture and fixtures Land Improvements Examples Defining and Classifying Long-Lived Assets
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Intangible Assets Have no physical substance Often represent legal or contractual rights Defining and Classifying Long-Lived Assets Patents Copyrights Franchises Goodwill Trademarks Examples
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Learning Objective 2 Apply the cost principle to the acquisition of long-lived assets.
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Definition of “Capitalize” To “capitalize” is to record a cost as an asset rather than an expense Acquisition costs of tangible assets are “capitalized”
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Acquisition cost includes: 1) the purchase price 2) all expenditures needed to prepare the asset for its intended use. Acquisition cost does not include financing charges such as interest expense on debt incurred to purchase a long-term asset that is already constructed. Acquisition of Tangible Assets
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Purchase/construction cost Legal fees Appraisal fees Architectural fees Acquisition Cost Buildings
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Purchase/construction cost Sales taxes Transportation costs Installation costs Acquisition Cost Equipment
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Purchase cost Legal fees Surveying fees Title and recording fees Taxes Broker’s commissions Land is not depreciable. Acquisition Cost Land
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Asset cost includes: All materials and labor traceable to the construction. A reasonable amount of overhead. Interest on debt incurred during the construction. Self- Constructed Tangible Assets
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Basket Purchase – when two or more long-term tangible assets are purchased for one lump sum. The total cost of the basket purchase is allocated to the individual assets in proportion to their relative market values . Acquisition Cost Basket Purchase
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On August 1, Hokie Corp. purchased land and a building for $500,000 cash. The appraised values are building, $400,000, and land, $200,000. How much of the $500,000 purchase price will be charged to the building and land accounts? Example: Acquisition Cost Basket Purchase
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Appraised % of Purchase Apportioned Asset Value Value Price Cost a b * c b × c Land 200,000 $ 33% × 500,000 $ = 166,667 $ Building 400,000 67% × 500,000 = 333,333 Total 600,000 $ 100% 500,000 $ * $200,000 ÷ $600,000 = 33% $400,000 ÷ $600,000 = 67% Acquisition Cost Basket Purchase
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purchase. Debit
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ACIS+2115+Chapter+9+Lecture+Fall+2009 - Chapter 9 Reporting...

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