Exam I summary - Summary – Exam I Summary Ch. 10 -...

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Unformatted text preview: Summary – Exam I Summary Ch. 10 - Acquisition Acquisition - Capitalization or periodic expense Capitalization - Disposition Ch. 11 Ch. - Allocation of cost of fixed assets Allocation - Depletion for natural resources Depletion - Impairment of long-lived assets Impairment Ch. 12 - Valuation of intangible assets: Acquisition and impairment Valuation - Allocation of cost of intangible assets: Amortization Allocation - R&D expenditure R&D Summary – Exam I Summary Ch. 10 - Acquisition Acquisition - Capitalization or periodic expense Capitalization - Disposition - Comparison of IFRS Comparison Ch. 11 - Allocation of cost of fixed assets Allocation - Depletion for natural resources Depletion - Impairment of long-lived assets Impairment - Comparison of IFRS Comparison Ch. 12 - Valuation of intangible assets: Acquisition and impairment Valuation - Allocation of cost of intangible assets: Amortization Allocation - R&D expenditure and Software development R&D - Comparison of IFRS Comparison Ch 10 Ch Acquisition - Cost: Purchase cost + necessary expenditure Cost: - Non-monetary purchase: Fair value of asset given up or fair value of asset received - Self-constructed assets: Allocate over-head costs costs - Interests costs during construction Interests - Exchanges of Nonmonetary assets Exchanges Capitalizing interest Capitalizing Weighted-Average Accumulated Expenditures (WAAE) Avoidable interest - WAAE < Specific debt: WAAE Avoidable interest = WAAE * Interest rate of specific debt debt - WAAE > Specific debt: WAAE Avoidable interest = WAAE (up to specific borrowing) * Interest rate of specific debt + WAAE exceed to specific borrowing * weighted average interest of other debt average Amount of capitalized interest: Min (Actual interest, Avoidable interest) Min Exchange of Nonmonetary Assets Exchange Exchange has commercial substance - Immediate recognition of gain (or loss) - Gain or loss = FV of asset given up – BV of asset given up up Exchange has no commercial substance - No cash received: Recognition of loss, deferring entire gain gain - Cash received: Recognition of loss or recognition of partial gain partial Cost of asset received: - FV of asset received [= FV of asset given up + cash received (if any) – Payment of cash (if any)] – deferred gain (if any) gain Capitalization vs. periodic expense Capitalization Capitalization of costs: One of three conditions must be met One - Increase in useful life of asset Increase - Increase in quantity of production Increase - Enhancement in quality of production Enhancement Additions Improvements and replacement with an increase Improvements in future service in Rearrangement and reinstallation resulting in Rearrangement future benefit future Major repair Dispositions of plant assets Dispositions Recognition of gain or losses Depreciation must be taken up to the date Depreciation of disposition of Gain or loss from infrequent or unusual Gain involuntary conversion Extraordinary gain or loss gain Ch 11 Ch Depreciation - DDD, SYD, S-L method, Activity method DDD, - Change in accounting estimation Change - Partial year adjustment Partial - Depreciation and sale of fixed asset Depreciation Impairment - Recoverability test - Determination of impairment: Recoverability Carrying value > Sum of future expected future cash flow (undiscounted) (undiscounted) - Fair value test – Measurement of impairment: Fair Carrying value > Fair value ~ Difference is impairment loss impairment - No Restoration of impairment losses – Asset for held Asset - Restoration of impairment losses – Held for sale Held - Impairment loss – Other expenses and losses Depletion Depletion Depletion base: Cost of natural resources: Cost - Acquisition costs Acquisition - Exploration costs: Successful efforts vs. full-cost approach approach - Development costs: Only intangible development costs are included in the depletion base are - Restoration costs Restoration Depletion base = Cost of natural resources – Salvage value Depletion Ch 12 Ch Valuation & allocation of cost of intangible Valuation assets assets Valuation - Cost of intangible asset Cost - Impairment of intangible asset Impairment Amortization of intangible asset with Amortization limited life: Straight-line method limited Intangible assets Intangible Valuations - Purchased intangibles Purchased - Internally created intangible expense Amortizations - Generally, use S-L method Generally, - Amortization should be based on the shorter period between legal life and economic useful life economic Goodwill Goodwill Goodwill = purchase price – fair value of net Goodwill assets assets Negative goodwill: Purchase price < fair value of Negative net assets The difference is negative goodwill Treatment of negative goodwill - Allocate negative goodwill into long-term acquired asset based on fair value ratio acquired - Residual negative goodwill is reported as extraordinary gain extraordinary No amortization and impairment test at least No annually annually Impairment Impairment Intangible asset with limited life - Recoverability test & Fair value test Recoverability Intangible asset with indefinite life excluding Intangible goodwill goodwill - Fair value test Fair Goodwill - Reporting unit based test Reporting - Step 1. Fair value of reporting unit vs. Carrying value of reporting unit (including goodwill) value - Step 2. Fair (implied) value of goodwill vs. Carrying value of goodwill Carrying R & D expenditure expenditure Any expenditure related to research or Any development activities is recognized expense when the cost was incurred when Exception: - Capitalized R&D expenditure if the expenditure has future alternative benefit or usage has Expenditures for routine or periodic alternations Expenditures to existing products are not R&D expense to Other issues Other Start-up costs periodic expense Start-up Initial operating losses losses Initial Computer software costs - Cost to develop software until technological feasibility technological - Amortization: Max (S-L method, percent of revenue approach) approach) Comparison with International accounting Comparison standards standards ...
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