Lecture 9 Capital Assets

Lecture 9 Capital Assets - LECTURE 9 CAPITAL ASSETS MGCR...

Info iconThis preview shows pages 1–12. Sign up to view the full content.

View Full Document Right Arrow Icon
LECTURE 9 CAPITAL ASSETS MGCR 211
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Overview User Relevance Accounting treatment Additions to Capital Assets Amortization methods Natural Resources and Intangible Assets
Background image of page 2
User Relevance Capital assets relate to assets that are used in operations by the company for the purpose of generating income. Capital assets are considered assets because: E They have a future value to the company as they will help the company generate income. E The capital asset is owned by the company E The transaction giving rise to ownership previously occurred.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
User Relevance Capital Assets are important to investors a Can evaluate the ROA, see if the company is operating efficiently E Can assess investment of company in capital assets which could be seen as indicator of growth Capital Assets are important to creditors a Can be used as collateral for debts Capital Assets are important to management a Also want to monitor ROA to ensure efficiency E Evaluate future cash outflow of company to
Background image of page 4
Historical vs. Market Value Should assets be recorded on the balance sheet at their Market Value or Historical cost?
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Accounting for Capital Assets E Capital assets must initially be recorded at cost E The cost of the capital asset is amortized over its useful life E The capital asset, at any period, is therefore presented at his amortized historical cost
Background image of page 6
IFRS – ACCOUNTING CHOICE! IFRS provides companies with an option to record fixed assets at fair value. However, in practice very few companies adopted that option. E Strict requirements for valuation E Additional costs incurred in valuation and financial reporting process
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Impairment of Assets Canadian GAAP further states that an asset cannot be recoded at a value that is higher than net recoverable amount. Asset Recoverable < Amortized Historical = Impairment Amount Cost
Background image of page 8
Impairment Example Stella Corporation is a production company that specializes in TV ad campaigns. Stella Corp currently has $1,250,000 of camera equipment on their balance sheet. However, this equipment is not capable of producing commercials in HD. Stella Corp has not been using this equipment lately and has received an offer from AdPlus Inc to buy her cameras at $500,000. Impairment Loss 750,000 Acc Amortization 750,000
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Capitalizable costs Costs that are necessary to acquire the asset and get it ready for use can be included as part of the cost of the capital assets E Purchase price less discounts E Direct taxes E Legal costs E Shipping, transportation E Site preparation E Set-up costs
Background image of page 10
You are the owner of a restaurant and you install a new ventilation system.
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 12
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 50

Lecture 9 Capital Assets - LECTURE 9 CAPITAL ASSETS MGCR...

This preview shows document pages 1 - 12. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online