Lectures 16 and 17 Capital Assets Webct

Lectures 16 and 17 Capital Assets Webct - LECTURE 16 &...

Info iconThis preview shows pages 1–12. Sign up to view the full content.

View Full Document Right Arrow Icon
CAPITAL ASSETS MGCR 211
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Overview User Relevance Accounting treatment Additions to Capital Assets Amortization methods Natural Resources and Intangible Assets
Background image of page 2
User Relevance Capital assets relate to assets that are used in operations by the company for the purpose of generating income. Capital assets are considered assets because: They have a future value to the company as they will help the company generate income. The capital asset is owned by the company The transaction giving rise to ownership previously occurred.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
User Relevance Capital assets will provide a benefit to the company over many periods. Capital assets are therefore classified as long-term assets.
Background image of page 4
User Relevance Capital Assets are important to investors Can evaluate the ROA, see if the company is operating efficiently Can assess investment of company in capital assets which could be seen as indicator of growth Capital Assets are important to creditors Can be used as collateral for debts Capital Assets are important to management Also want to monitor ROA to ensure efficiency
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Historical vs. Market Value Should assets be recorded on the balance sheet at their Market value or Historical cost?
Background image of page 6
Accounting for Capital Assets Canadian GAAP (ASPE) states that Capital assets must initially be recorded at cost The cost of the capital asset is amortized over its useful life The capital asset, at any period, is therefore presented at his amortized historical cost IFRS states that Capital assets MAY be recorded at net recoverable amount
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Impairment of Assets Canadian GAAP and IFRS further state that an asset cannot be recorded at a value that is higher than net recoverable amount. Asset Recoverable < Amortized Historical = Impairment Amount Cost
Background image of page 8
Impairment Example Stella Corporation is a production company that specializes in TV ad campaigns. Stella Corp currently has $1,250,000 of camera equipment on their balance sheet. However, this equipment is not capable of producing commercials in HD. Stella Corp has not been using this equipment lately and has received an offer from AdPlus Inc to buy her cameras at $500,000. Impairment Loss 750,000 Acc Amortization 750,000
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Impairment Example - IFRS On Jan 1, 2008, Starlight Corp purchased a piece of land $1M cash. On Dec 31, 2008, the value of the land has increased in $1.5M On Dec 31, 2010, due to a downturn in the market, the value of the land had decreased to $750K. REQUIRED : What is the impact on the financial statements on: January 1, 2008? December 31, 2008?
Background image of page 10
Capitalizable costs GAAP and IFRS state that costs necessary to acquire the asset and get it ready for use can be included as part of the cost of the capital assets Purchase price less discounts Direct taxes Legal costs Shipping, transportation Site preparation Set-up costs
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 12
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 43

Lectures 16 and 17 Capital Assets Webct - LECTURE 16 &amp;...

This preview shows document pages 1 - 12. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online