fi4 - WhenisIncomeEarned? Cashbasisaccounting:...

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When is Income Earned? Cash basis accounting: Revenues realized only when cash received Expenses realized when actually paid Key advantage--simplicity Accrual basis accounting: Revenues realized when constructively earned Expenses realized when constructively incurred Key advantage—matching of revenues/expenses  to correct accounting period
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Issues Related to Non-current Assets Asset Acquisition— Measurement of asset cost (including  Asset cost allocation— Matching cost to periods of useful life  (depreciation/amortization/depletion) Asset disposal-- Gains or losses
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Group purchase of assets See handout illustration for example: If a “bargain purchase” overall purchase  price should be allocated ratably among  all assets acquired according to FMV’s If purchase price includes a “premium”  over asset FMV’s, “Goodwill” is  generated (to be discussed later)
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Non-Current Assets Land—recorded at cost, non-depreciable Cost includes upgrading to intended use Plant/Equipment—recorded at cost,  depreciated over useful lives Intangible assets  Legal rather than physical existence Amortized over shorter of legal or useful  life
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Non-current assets  (continued) Natural resources—”wasting”  resources: Subject to depletion—write off of original  cost on a “units of output” method Acquisition costs include costs of acquiring  restoration to original use
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Two major theories to consider here:
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fi4 - WhenisIncomeEarned? Cashbasisaccounting:...

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