6th-Lesson #05 - Handout Notes - BCIT FMGT 1152 Accounting...

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BCIT – FMGT 1152 – Accounting for the Manager 1 of 8 FMGT 1152 - Lesson #5 Long-lived Assets/Depreciation - Chapter 9 (excluding “exchange”) (Refer to the Course Outline for specific page numbers) 1. Long-lived Assets 1.1 Long-lived assets are assets acquired for use the operations of the business and are not intended for sale to customers, and will be used in future operating periods. 1.2 Long-lived may be tangible (with physical substance) or intangible (without physical substance. 1.3 Tangible capital assets are often subdivided into two classes: 1.3.1 Property, plant, and equipment. 1.3.1.1 Land. 1.3.1.2 Land improvements, such as driveways, parking lots, fencing, landscaping, and underground sprinkler systems. 1.3.1.3 Buildings, such as stores, offices, factories, and warehouses. 1.3.1.4 Equipment, such as store checkout-counters, cash registers, coolers, office furniture, factory machinery, and delivery equipment. 1.3.2 Natural resources. 1.3.2.1 Natural resources physically lose substance or deplete , as they are used. 2. Determining the Cost of Long-lived Assets 2.1 Long-lived assets are recorded at historical cost in accordance with the cost principle of accounting. 2.2 Cost consists of all expenditures necessary to acquire the asset and make it ready for its intended use. These costs are “capitalized” because they will provide benefits over future periods. Costs which only benefit the current period are called operating expenditures and are expensed. Costs that benefit future periods are included in the long-lived asset account and are called capital expenditures . 2.3 Cost is measured by the cash paid or cash equivalent price paid when non-cash assets are used in payment. The cash equivalent price is equal to the fair market value of the asset given up. If this value is not clearly determinable, the fair market value of the asset received is used.
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BCIT – FMGT 1152 – Accounting for the Manager 2 of 8 2.4 In subsequent periods after acquisition of the long-lived asset, current market values or replacement values are not considered after an asset is acquired unless the values decline below the carrying amount (net book value). If the market value falls below the carrying amount, an impairment loss should be recorded, and the carrying amount should be reduced to the market value of the asset. If the market value subsequently recovers, the carrying amount is not adjusted upwards. 2.5 Application of the cost principle to the components of property, plant, and equipment 2.5.1 The cost of land includes the purchase price, closing costs such as title and legal fees, and surveying. All the costs that come from preparing the land for use are also debited (i.e. added) to the land account. Such costs include clearing, draining, filling, and removing old structures.
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