7_Long Term Assets

7_Long Term Assets - Previous three classes Impact to...

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Previous three classes Impact to Financial Statements due to: Management Judgment Bad Debt Provision/Allowance balance Inventory Provision/Allowance balance Management Accounting Choice Inventory Accounting Lifo – not only accounting implications but also cash flow implications! Both issues (Judgment & Choice) apply to today’s topic
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Objectives To understand and appreciate the issues associated with long-term assets To learn how to reverse engineer events related to long-term assets from
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Long-Term Assets Which asset is the toughest to manage? Why? Non-current assets are typically a large percentage of total assets Their efficient use is critical to the firm’s financial performance
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Agenda Issues Overview Capitalize vs. Expense Costs to Capitalize Depreciation Methods Allocation vs. Valuation Calculations Management Discretion Accounting for Costs incurred during Operations Impairments Effects on Financial Statements Accounting Changes Intangibles
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time Acquire An Asset? Valuation ? Use an Asset, Change in Information Dispose Of an Asset Repair An Asset Or Improve An Asset Asset Accounting – must consider each of the following: Impairment?
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Capitalize vs. Expense Asset: Capitalize Have acquired rights to the future use of a resource as a result of a past transaction or event. Can reliably measure the cost of the expected benefits at the time of initial recognition
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Capitalize vs. Expense B/S I/S Capitalize: # 1 #3 Expenditure Capitalize amount Expense as as fixed asset Depreciation (PP&E) #2 #4 Capitalize PPE’s depreciation Expense as as part of inventory COGS Expense: #5 Expenditure Expense in current period
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Costs to Capitalize Acquisition Costs All costs necessary to get an asset (tangible or intangible) ready for its intended use are capitalized, including: purchase price delivery charges installation costs
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Costs to Capitalize Costs during Construction Capitalize the cost of constructing an asset including any interest on debt that is incurred during construction to finance the construction.
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Example Firm builds its own equipment. On July 1, 2003, firm borrows $10,000 at 10% per year to finance the building process. On January 1, 2004 firm begins building the
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7_Long Term Assets - Previous three classes Impact to...

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