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Chapter+8+Slides+with+notes

Chapter+8+Slides+with+notes - Chapter 8 Reporting and...

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Chapter 8 Reporting and Interpreting Property, Plant and Equipment; Natural Resources; and Intangibles Slide 1 Chapter Eight ACCT 2010 Fall 2011 Allen Huang Learning Objective for Chapter 8 Define, classify, and explain the nature of long-lived productive assets and interpret the fixed asset turnover ratio. Apply the cost principle to measure the acquisition and maintenance of property, plant, and equipment. Apply various cost allocation methods as assets are held and used over time. Explain the effect of asset impairment on the financial statements. Slide 2 Chapter Eight Analyze the disposal of property, plant, and equipment. Apply measurement and reporting concepts for natural resources and intangible assets.
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Importance of Depreciable Assets Depreciable Assets Total Assets Depreciable assets: All long lived assets, irrespective of whether they are tangible or intangible and irrespective of whether HSBC 0.9% Dell 18.5% PCCW 32.3% Hilton Hotels 55.4% Cathay Pacific 64 3% Slide 3 Chapter Eight irrespective of whether they have finite or indefinite lives. 64.3% Exxon Mobil 71.1% MTR 82.2% Actively Used in Operations Classifying Long-Lived Assets Expected to Benefit Future Periods Land Assets subject to depreciation Buildings and equipment Furniture and fixtures Examples Value represented by rights that produce benefits Definite life Patents Examples Slide 4 Chapter Eight Tangible Physical Substance Intangible No Physical Substance Natural resource assets subject to depletion Mineral deposits and timber Copyrights Franchises Indefinite life Trademarks Goodwill
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Fixed Asset Turnover Fixed Asset Turnover Net Sales Revenue Average Net Fixed Assets = This ratio measures a company’s ability to generate sales given an investment in fixed assets. Southwest Airlines had $9,861 of revenue. End-of-year fixed assets were $10,874 and beginning-of-year fixed assets were $10,094. (All numbers in millions.) Slide 5 Chapter Eight Fixed Asset Turnover $9,861 ($10,094 + $10,874) ÷ 2 = = 0.94 Delta Southwest United 1.26 0.94 1.68 2006 Fixed Asset Turnover Comparisons Measuring and Recording Acquisition Cost Acquisition cost includes the purchase price and all expenditures needed to prepare the asset for its intended use expenditures needed to prepare the asset for its intended use. Acquisition cost does not include financing charges and cash discounts. Buildings Purchase price Slide 6 Chapter Eight Renovation and repair costs Legal and realty fees Title fees
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Measuring and Recording Acquisition Cost Equipment Purchase price I t ll ti t Land Purchase price Real estate commissions Installation costs Modification to building necessary to install equipment Transportation costs Title insurance premiums Delinquent taxes Surveying fees Title search and transfer fees Slide 7 Chapter Eight Land is not depreciable.
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