Session 7 - ACC 500: Intro to Financial Acctg Meeting #7:...

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ACC 500: Intro to Financial Acctg Meeting #7: Accounting for Assets II – Long Lived Assets and Costs of Capacity Professor Ryan Casey College of Business Administration University of Illinois at Chicago
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Outline of Lectures on Capacity Cost of Capacity: Capitalization vs Expense Valuation vs Allocation: Depreciation Other: Gain on sale, capitalized interest, impairments, marketable securities, Cases: CCE/Cadbury, Genentech (also may want to review PWA and Bethlehem from earlier)
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Introduction to Cost of Capacity Consider various sector and related capacity costs: Financial Services Branches, IT Pharmaceutical Engineering Plant Food/Beverages Plant, Distribution Paper and Forest Products Timber, Plant Airlines Fleet, Gates Usually above capacity is Long-Lived , i.e. provides benefits > 1 year
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Costs of Acquiring Long Lived Assets Definition: Long Lived Operating assets are classified as tangible, if they have physical substance, e.g. or intangible, e.g. brands, franchises, goodwill. What needs to be considered?
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Capitalization vs. Expense Decision A Cost is a measure of value of resource given up to generate revenues; every cost is either expensed or capitalized. An expense is the amount of a cost used to generate revenue in the current period. A capitalized cost is the amount of a cost that will generate revenues in future periods.
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Costs of Acquiring Long Lived Assets In January 2000, one of your staff asks you to approve the acquisition of equipment costing $80,000. The expected (end of period) cost savings from the equipment are: Your cost of funds is 10% (hint, 1.1, 1.21, 1.331, 1.4641) What would you do and why? How would you record the purchase if approved? (or ) $29,382 $26,720 $24,300 $22,100 2003 2002 2001 2000
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Asset Valuation Historical Cost (HC) : amount paid to acquire an asset Replacement Cost : amount required to purchase the asset today Fair Market Value (FMV) : amount received if the asset were sold Present Value : today s value of asset s future cash flows
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Asset Valuation and Presentation : Valued at HC (review for impairment, see below); show net, but disclose gross cost and accumulated depreciation Intangibles : Same as PP&E (impairment review
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This note was uploaded on 10/07/2011 for the course ACTG 500 taught by Professor Staff during the Fall '08 term at Ill. Chicago.

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Session 7 - ACC 500: Intro to Financial Acctg Meeting #7:...

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