chapter 10 operational assets

chapter 10 operational assets - Chapter 10 Part A:...

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Chapter 10 Part A: Valuation at Date of Acquisition I. Types of Operational Assets A. For financial reporting purposes, operational assets typically are classified in two categories: (T10-1) 1. Property, plant, and equipment. 2. Intangible assets. B. In practice, some companies report intangibles as part of property, plant, and equipment, and others include them with the other assets category. II. Costs to Be Capitalized (T10-2) A. Operational assets can be acquired through purchase, exchange, lease, donation, self-construction, or a business combination. B. The initial cost of an operational asset includes all necessary cost to bring the asset to its condition and location for use. C. Costs are capitalized, rather than expensed, if they are expected to produce benefits beyond the current period. D. Property, plant, and equipment acquired through purchase 1. The cost of equipment (machinery, computers, office equipment and furniture, vehicles, fixtures) includes the purchase price plus any sales tax, transportation costs, expenditures for installation, testing, legal fees to establish title, and any other cost of bringing the asset to its condition and location for use. (T10-3) 2. The cost of land includes the purchase price plus closing costs such as fees for the attorney, title and title search, and recording. In addition, any expenditures needed to prepare the land for its intended use are included as part of the cost of land. (T10-4) 3. The cost of land improvements (parking lots, driveways, private roads, fences, lawns, and sprinkler systems) must be separated from the cost of land because land has an indefinite life and land improvements usually do not. (T10-5) 4. The cost of buildings usually includes realtor commissions and legal fees in addition to the purchase price. 5. The cost of a natural resource includes the acquisition costs for the use of land and the exploration and development costs incurred before production begins, and restoration costs incurred during or at the end of extraction. (T10-6) 6. Restoration costs are one example of asset retirement obligations (AROs) . As asset retirement obligation is measured at fair value and is recognized as a liability and corresponding increase in asset valuation. 7. In SFAS 143 , the FASB recommended the use of the expected cash flow approach when estimating the fair value of an ARO by calculating the present value of estimate future cash outflows.
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E. Intangible assets generally represent exclusive rights that provide benefits to the owner. Intangible assets with finite useful lives are amortized; intangible assets with indefinite useful lives are not amortized. (T10-7) 1. Purchased intangibles are valued at their original cost to include the purchase price and all other necessary costs to bring the asset to condition and location for use. (T10-8) 2. A patent is an exclusive right to manufacture a product or to use a process. 3.
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chapter 10 operational assets - Chapter 10 Part A:...

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