24 Property&Equipment - 24 LonglivedFixedAssets...

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Long-lived Fixed Assets Long-lived Fixed Assets Accountancy 301 Spring 2011 Flora Zhou 24
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Today Today ’s agenda ’s agenda • Long-lived fixed assets – Acquisition and valuation • Self-constructed assets • Deferred payments • Exchange – Expenditure after acquisition – Depreciation
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Long-lived fixed assets Long-lived fixed assets - characteristics - characteristics • Also called PPE or long-term assets • Productive assets that derive their value  from long-term use in operations rather  than from resale.  • Tangible • Long-lived
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Initial asset measurement rules Initial asset measurement rules The initial balance sheet carrying amount of a long- lived asset is governed by two rules: 1. All costs necessary to  acquire  the asset and make it  ready to use  are  included in the asset account (meaning they are  capitalized costs ).   Other costs are “expensed” to income. $$ $$ $$ $$ Capitalized Expensed Price paid for land Cost of clearing  land Monthly equipment rental Cost to repair damaged  equipment $200 delivery  and installation fee Equipment A Equipment B $100 $100 2. Joint costs  incurred in acquiring more than one asset are  apportioned among the acquired assets.
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Example - Equipment Example - Equipment • Net purchase price • Taxes • Transportation costs • Installation costs • Modification to building necessary to install  equipment • Testing and trial runs
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Capitalized costs: an example Capitalized costs: an example Phoenix Co. acquired a large piece of specialized machinery  used in its manufacturing process. The following costs were  incurred in connection with the acquisition: – Finder’s fee $2,000 – List price 230,000 – Transportation fee     4,000 – Speeding ticket during transportation         65 – Installation fee     2,500 – Cost to repair a door damaged  during installation   1,200 Required: which of the costs incurred by Phoenix Co. should be  capitalized to the machinery account?
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Self-constructed assets: what to  Self-constructed assets: what to  capitalize? capitalize? • To  capitalize  means to include a cost item in the  historical acquisition cost of the asset and then to  depreciate over the life of the asset • Sometimes, long-lived assets are self-constructed.  Cost items to be capitalized for self-constructed  assets include: – Direct Materials & Labor – Variable Overhead – Applied Fixed Overhead Interest During Construction  
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Capitalization of interests Capitalization of interests Interest that could have been  avoided if the asset were not  constructed and the money used  to retire debt.
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24 Property&Equipment - 24 LonglivedFixedAssets...

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