LN09-ch9-AFM101s10

LN09-ch9-AFM101s10 - Chapter 9 Reporting and Interpreting...

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Financial Accounting, Third Canadian Edition 9-1 Chapter 9 Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
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Financial Accounting, Third Canadian Edition 9-2 Understanding The Business How much is enough? Insufficient capacity results in lost sales. Costly excess capacity reduces profits.
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Financial Accounting, Third Canadian Edition 9-3 Tangible Physical Substance Intangible No Physical Substance Expected to Benefit Future Periods Actively Used in Operations Classifying Long-Lived Assets
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Financial Accounting, Third Canadian Edition 9-4 Tangible Physical Substance Intangible No Physical Substance Expected to Benefit Future Periods Actively Used in Operations Land Assets subject to amortization Buildings and equipment Furniture and fixtures Natural resource assets subject to depletion Mineral deposits and timber Examples Classifying Long-Lived Assets
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Financial Accounting, Third Canadian Edition 9-5 Tangible Physical Substance Intangible No Physical Substance Expected to Benefit Future Periods Actively Used in Operations Value represented by rights that produce benefits Patents Copyrights Trademarks Franchises Goodwill Subject to amortization Examples Classifying Long-Lived Assets
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Financial Accounting, Third Canadian Edition 9-6 Fixed Asset Turnover Fixed Asset Turnover Net Sales Revenue Average Net Fixed Assets = This ratio measures a company’s ability to generate sales given an investment in fixed assets. For the year 2006, WestJet had $1,773,686 of revenue. End-of- year fixed assets were $2,158,746 and beginning-of-year fixed assets were $1,803,497. (All numbers in thousands.) $1,773,686 ($1,803,497 + $2,158,746) ÷ 2 = = 0.89 WestJet Airlines 2004 2005 2006 0.77 0.77 0.89 Comparison Over Time
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Financial Accounting, Third Canadian Edition 9-7 Measuring and Recording Acquisition Cost Acquisition cost includes the purchase price and all expenditures needed to prepare the asset for its intended use. Acquisition cost does not include financing charges and cash discounts .
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Financial Accounting, Third Canadian Edition 9-8 Purchase price Architectural fees Renovation and repair costs and cost of permits Legal and realty fees Title fees Excavation and construction costs Acquisition Cost – Buildings
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Financial Accounting, Third Canadian Edition 9-9 Purchase price Installation costs Modification to building necessary to install equipment Transportation costs Acquisition Cost – Equipment
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9-10 Purchase price Real estate commissions Title insurance premiums Delinquent taxes Surveying fees Title search and transfer fees Land is not amortizable. Acquisition Cost – Land
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LN09-ch9-AFM101s10 - Chapter 9 Reporting and Interpreting...

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