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(8) Capital Assets

(8) Capital Assets - Chapter 8 Capital Assets Tangible and...

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Chapter 8 – Capital Assets, Tangible and Intangible: A common way to acquire long-live assets is to lease them o Users need to monitor the assets’ lives so that they can anticipate the future outflows of cash to replace them Capital Assets are used first and foremost to generate revenues by producing products, facilitating sales, or providing services Value In Use: Where the future value is represented by the cash that will eventually be received from the sales of products and services Residual Value: Value that the asset is worth after “X” number of years of usage Technological change can reduce or eliminate the need for a company’s product (e.g. When the iPod got rid of walkmans) In Canada, property, plant, and equipment are usually valued at historical cost Net Book/Carrying Value: The original cost less the portion that has been charged to expense in the form of amortization How Are Capital Assets Valued? 1) Historical Cost 2) Market Value a. Replacement Cost – Amount that would needed to acquire an equivalent asset As the asset is used, the carrying value is adjusted to reflect changes in replacement cost (These changes are recognized as unrealized gains/losses) b. Net Realizable Value – Assets are recorded at the amount that could be received by selling them (Generally not used in Canada) Note: An asset cannot be valued at more than the amount that can be recovered from it Net Recoverable Amount: Total of the future cash flows related to the asset Capitalizable Cost: Any cost that is necessary to acquire the asset and get it ready for use (Costs included in the cost of the capital asset) Note: The cost of land is not amortized Land Improvements: Refers to things done to the land to improve its usefulness but doesn’t last forever (e.g. fencing, parking lots, lighting, walkways, etc…) The cost of these land improvements must be amortized over their expected useful lives
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