Accounting2011Notes

Require sacrifice of resources result from past

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Unformatted text preview: a source Gains or losses are not cash flows Proceeds on disposal are the only cash inflow Financial Statement Analysis Choices that can affect the financial statements – What costs get capitalized – How capital assets are amortized – Estimates of useful life and residual value – The existence of unrecorded assets (especially intangible assets) – Impairment of capital assets Return on Assets = Net Income + After-tax Interest Expense Average Total Assets Amortization and Income Tax Income tax act specifies depreciation for tax purposes Called “capital cost allowance” Divides assets into classes Specifies rate for each class Capital Cost Allowance Declining balance method Ignores residual value Half year rule applies Does not necessarily match No choice in method or rate Wrap- up – – – Measurement of capital assets Historical cost Net realizable value Replacement cost Value- in- use Cost includes all costs to get the asset “ready for use” Measurement of capital assets Historical cost Net realizable value Jessica Gahtan ACTG2011 Page 7 Final Notes – Chapters 8- 12 Fall 2013 Replacement cost Value- in- use Cost includes all costs to get the asset “ready for use” CHAPTER 9: LIABILITIES What are Liabilities? Require sacrifice of resources Result from past transactions or events Not negotiable Example – amounts owed to supplier for inventory Valuation of Liabilities Long- term — at their present value Current liabilities — at face value Current Liabilities Bank and other demand loans Accounts payable Collections on behalf of third parties Income taxes payable Dividends payable Accrued liabilities and provisions Unearned revenue Disclosure Segregate current liabilities by main class Detailed disclosure on provisions Accounts payable and accrued liabilities are usually shown together Segregation as current and non- current not required Long- term Liabilities Debt Instruments – Bonds – Debentures – Mortgages – Notes payable Bond Characteristics Obligation to pay periodic interest and principal – Face value – Maturity date – Coupon rate Jessica Gahtan ACTG2011 Page 8 Final Notes Chapters 8- 12 Fall 2013 – Frequency of payment Proceeds From Bonds Company may receive more or less than face value Determined by effective interest rate – Amount of interest required by lender given the risk and current market rates – May be more or less than face rate Effective Rate vs. Face...
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