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CACC 414 CH10 - CACC414 CH10 Long-Lived Assets 1 Tangible...

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CACC414 CH10 Long-Lived Assets 1. Tangible Capital Assets - Property, plant, and equipment - (can also be referred as plant assets or fixed assets) 2. Intangible Assets Amortization is the allocation of the cost of any long-lived asset to different accounting periods TANGIBLE CAPITAL ASSETS 3 MAJOR CHARACTERISTICS 1. Acquired and held for use in operations and not for sale 2. Long-term in nature and usually subject to amortization - Exception: Land is not amortized unless a material and continual decline in value occurs - Periodic amortization charges = cost of the investment in the asset assigned to the periods that benefit from using them 3. Possess physical substance SUPPLY INVENTORY V. CAPITAL ASSET Suppose: - Capital Asset = {substantial fleet of trucks} - Truck related asset = {spare tires, major motor parts, oil and grease, and truck cleaning equipment} Then: 1. Include in inventory any spare parts and servicing equipment that have multiple uses and are regularly used and replaced within the accounting period 2. Include in capital asset major spare parts and standby/servicing equipment that either are useful for more than one period or can be used only with a particular capital asset ACQUISITION COSTS HISTORICAL COST IS THE USUAL BASIS FOR VALUING PPE Historical Cost is measured by cash or cash equivalent price of 1. obtaining the asset + 2. bringing it to the location + 3. getting it into proper condition necessary for its intended use Asset’s Cost Includes: 1. purchase price 2. freight cost 3. provincial sales taxes 4. productive asset’s installation costs (The cost are allocated to future periods using amortization) Cost incurred after acquisition are:
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CACC414 CH10 1. added to the asset’s cost IF they increase future service potential 2. expensed IF they do not add to the asset’s original service potential At Acquisition Date Asset’s Value = Cost of Asset Currently in Canada: 1. “write-up” of fixed assets’ value is not allowed - Exception: during financial reorganization 2. Only historical cost can be used to value non-financial assets (with minor exceptions) Reasons: 1. At acquisition date, cost reflects fair value 2. Historical cost involves actual, not hypothetical, transactions, and as a result is more objective 3. Gains should not be anticipated and recognized before they are realized, that is, before the asset is converted into cash or a claim to cash COST OF LAND = EXPENDITURES THAT ARE MADE TO ACQUIRE LAND AND MAKE IT READY FOR USE LAND COSTS INCLUDE 1. Purchase price 2. Closing costs - Title, legal, and recording fees 3. Cost of getting land ready for use - removal of old building, clearing, grading, filling and draining 4. Assumption of Liens 5. Additional improvements with indefinite life Land Improvements 1) Improvements with limited lives are recorded in a separate Land Improvements account These costs are separated from Land as they are amortized over their estimated useful lives Ex: driveways, walkways, fences and parking lots 2)
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