ORIE 3150 September 27 2011 Slides

ORIE 3150 September 27 2011 Slides - ORIE3150 Depreciation...

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ORIE 3150 Depreciation Methods September 27, 2011
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Prelim I – Tonight at 7:30 PM September 27 th in Hollister 110 (A – G) and Hollister B-14 (H – Z). Coverage is up to and including the cash cycle, Homework 1, 2, and 3. Closed book, closed notes, calculator required. Same equation sheet is provided as for the Fall 2010 exam posted on Blackboard.
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Groupon Claim: $713,365,000 Revenue
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Groupon GAAP: $279,954,000 Revenue
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Who approved this garbage?  
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Long Term Assets Long term assets have the following characteristics: 1. Useful life of more than one year. 2. Acquired for operation of the business. 3. Are not intended for resale to customers.
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Long Term Assets Tangible assets have physical substance. 1. Land 2. Plant, buildings, and equipment (aka plant assets) 3. Natural resources - timber, ore, oil, gas, and coal
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Long Term Assets Intangible assets have no physical substance. - patents, copyrights, goodwill. These intangible assets are often more valuable than the tangible assets. However, they are recorded at cost, not at a higher, “market” value! Most long term assets are used up. They lose value over time. We must recognize this lost value each period as an expense. We allocate this expense to each period over the useful life of the asset.
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Long Term Assets The period allocation of expenses for plant, buildings, and equipment is (as we know) called depreciation. Can we depreciate land? No! We can depreciate land improvements, though. Typical land improvements are fences, parking lots, driveways, and signs.
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Long Term Assets The period allocation of the benefits of natural resources is called depletion. Usually on a per ton mined basis (for ore or coal), on a stumpage or per-tree basis (for pulp wood), on a board-feet basis (for timber), on a per barrel basis (for oil), or on a per million cubic feet basis (for natural gas).
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Long Term Assets The period allocation of intangible assets is called amortization. The unexpired part of the cost of an asset is called its book value or carrying value. Ex. For plant assets, Book value = cost – accumulated depreciation .
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Deciding whether to acquire long term assets One way is the Net Present Value (NPV) method. 1.
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ORIE 3150 September 27 2011 Slides - ORIE3150 Depreciation...

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