Handout 07 - INTRODUCTION TO FINANCIAL ACCOUNTING...

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Copyright © 2011 1 You may only share these materials with current term students. I NTRODUCTION TO F INANCIAL A CCOUNTING 33:010:272 S ECTIONS 08 09 |FALL 2011 P ROFESSOR J ULIAN Y EO Class Notes 7: Assets- Long-Term Assets (PP&E) In this document, we begin by defining what an asset is. We then examine the following issues related to long-term assets: 1. What are these things Accountants call “Assets”? 2. How do we account for Long-term Assets? 3. To ‘Capitalize’ or To ‘Expense’? 4. What are some issues related to Long-term Assets? 4.1 How much to allocate? Cost Basis less Salvage Value 4.2 For how long? Depreciation Period 4.3 What cost allocation method should we use? Depreciation methods Straight Line Accelerated Declining balance of Net Book value Sum of the years digits – SYD Accelerated Cost Recovery System – ACRS Production or usage method 5. How do we account for expenditures after acquisition? 6. How do we account for the sale or disposition of a long-term asset? 7. What is Asset Impairment? 8. What are some issues related to Intangible Assets?
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Copyright © 2011 2 You may only share these materials with current term students. Learning Objectives Upon completion of this topic, you should be able to: Define what an asset is Identify types of Long-Lived Assets o Tangible: Depreciable/ Depletable/ Non-Depreciable o Intangible: Amortizable/Non-Amortizable When incur costs, know when to capitalize/expense o Aware of exceptions to the general rules Discuss issues related to Tangible Long-Term Assets o How much to allocate? o For how long? o Which cost allocation method? Production or usage Straight-Line Accelerated Declining balance of net book value Sum of the years digits Accelerated cost recovery system How to account for Sale of Long-Term Assets? Journal entries Sale of Long-Lived Assets and Statement of Cash Flows Understand the concept of Asset Impairment. Discuss issues related to Intangible assets 1. What are these things Accountants call “Assets”? Assets – Assets are economic resources that Represent probable future economic benefits The future benefits can be measured with reasonable precision, and The resources were obtained or are controlled by the accounting entity as a result of past transaction or event. What do they mean by ‘probable’? IASC FASB Long-term (LT) Assets - resources held for extended use (several accounting periods), because of their revenue-generating potentials. Examples include land, buildings, equipment, natural resources and patents. Current assets - assets that are expected to be turned into cash, sold, or exchanged within the normal operating cycle of the firm or one year, whichever is longer.
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Copyright © 2011 3 You may only share these materials with current term students. Investments
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This document was uploaded on 10/25/2011 for the course ACCOUNTING 33:010:272 at Rutgers.

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Handout 07 - INTRODUCTION TO FINANCIAL ACCOUNTING...

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