Mgmt 200 Spring 2011 Chapter 7

Mgmt 200 Spring 2011 Chapter 7 - Long-Term Assets Chapter 7...

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1 Long-Term Assets Chapter 7 Long-term operating assets • Property, Plant, and Equipment (Tangible assets) • Natural resources (e g mineral Natural resources (e.g. mineral resources) • Intangible assets: Patents, copyrights, etc Long-term operating assets • Measurement of cost – Historical cost – Post acquisition expenditures • Record cost of using All ti f t (D i ti Allocation of cost (Depreciation expense) – Alternative allocation methods – Book value = Cost – Accumulated depreciation • Disposal of assets Gain or loss on disposal
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2 Measurement of cost • Acquisition costs Legal fees, shipping costs, installation costs Renovation expenditures • Self-constructed assets Capitalized interest • Basket Purchases Allocation to individual assets (Use fair values) • Post-acquisition costs Ordinary repairs and maintenance (Expense) Additions and improvements (Capitalize) Problem 7-1A Italian Bread Company purchased land as a factory site for $60,000. An old building on the property was demolished, and construction began on a new building. Costs incurred during the first year are listed below: Demolition of old building $ 8,000 Sale of salvaged materials (1,000) Architect fees (for new building) 15,000 Legal fees (for title investigation of land) 2,000 Property taxes on the land (for the first year) 3 000 3,000 Building construction costs 500,000 Interest costs related to the construction 18,000 Required: Determine the amounts that the company should record in the Land and the Building accounts. Natural Resources • Acquisition cost – Purchased resource – Discovery • Sustainability • Depletion expense
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3 Intangible Assets • Types of intangible assets: Patents Copyrights Brand names Franchises Goodwill • Purchased vs Internally-developed intangibles • Legal defense of intangibles • Amortization expense Post-acquisition expenditures • Repairs and maintenance – Treat as expenses • Additions and improvements – Capitalize as an asset and depreciate over remaining life of the asset – Add to the cost of the asset or deduct from accumulated depreciation Problem 7-4A Several years ago, Health Services acquired a helicopter for use in emergency situations. Health Services incurred the following expenditures related to the helicopter
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This note was uploaded on 02/27/2012 for the course MGMT 200 taught by Professor Greigg during the Spring '08 term at Purdue University-West Lafayette.

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Mgmt 200 Spring 2011 Chapter 7 - Long-Term Assets Chapter 7...

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