ACCT303 Chapter 10 teaching pp

ACCT303 Chapter 10 teaching pp - Chapter10:Longlivedassets...

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1 Chapter 10: Long-lived assets Learning Objectives 1. What measurement base is used for long- lived assets? 2. What kinds of costs are capitalized and how joint costs are allocated among assets? 3. What does asset “impairment” mean and how is it recorded?
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2 Learning Objectives (contd.) 1. How analysts can adjust for different depreciation assumptions and improve comparisons across companies? 2. How GAAP measurement rules complicate ROA trend analysis and comparisons across companies?
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10-3 Asset An asset is something that   generates future  economic benefits   and is under the  exclusive control   of a single entity. Examples: Cash, Accounts  receivables, investments,  inventories, property, plant and  equipment, intangible assets.
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4 Assets Actively Used in Operations Tangible ( Fixed) Assets Property, Plant, Equipment ( PPE)& Natural Resources Intangible Assets No Physical Substance Long-Lived Assets Expected to Benefit Future Periods
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5  Property, Plane and Equipment  PPE are acquired for use in continuing operations over the life of the asset to generate revenue.
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6 PPE (contd.) PPE are classified into two categories: Land (the cost is NOT subject to depreciation) Depreciable assets: buildings, equipment, motor vehicles, land improvement. Matching principle is applied for the periodical allocation of the cost of PPE to expenses ( this process is referred to as depreciation ).
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10-7
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8 Control Over PPE A fixed asset ledger card should be prepared and maintained for each individual PPE asset purchased. Include all the pertinent information relating to the asset and its use. These data enable the management to establish and maintain control over each individual asset. It also assists in accounting for all transaction relating to PPE assets.
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9 1. What costs to capitalize? Overview of Accounting for PPE  Acquisition 2. Depreciation 3. Post acquisition expenditures 4. Retirement Use Disposal
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10 Costs include in the initial cost   Identify the various costs included in the initial cost of property, plant, and equipment.
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11 Costs to be Capitalized General Rule The initial cost of an operational asset includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use . PPE are acquired either by cash purchase or by incurring a liability. If a liability is incurred, the interest charges cannot be included in the cost of the asset except for self-constructed assets.
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12 Net purchase price Taxes Transportation costs Installation costs Modification to building necessary to install equipment Testing and trial runs Costs to be Capitalized-  Equipment
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13 Land: Purchase price Commissions Legal fees Closing fees Clearing fees Title search & transfer fees Net razing cost of an old building Costs to be Capitalized – Land and  Land Improvements Land Improvements (depreciable): Driveways Parking lots Fencing Landscaping Private roads
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ACCT303 Chapter 10 teaching pp - Chapter10:Longlivedassets...

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