Bài giảng Financial Accounting - Chapter 7: Long-Term Assets

Long-Term AssetsChapter 7 Learning ObjectivesIdentify the major types of property, plant, and equipmentIdentify the major types of intangible assetsDescribe the accounting treatment of expenditures after acquisitionCalculate depreciation of property, plant, and equipmentCalculate amortization of intangible assetsAccount for the disposal of long-term assetsLearning ObjectivesDescribe the links among return on assets, profit margin, and asset turnoverIdentify impairment situations and describe the two-step impairment processLong-Term AssetsPart AAcquisitions7-5Learning Objective 1Identify the Major Types of Property, Plant, and Equipment7-6Property, Plant, and EquipmentCapitalize: recording an expenditure as an assetRecorded at:Cost of assetAll expenditures necessary to get it ready for use+Land and Land ImprovementsLand: includes land used for operationsLand improvements include:Parking lots, sidewalks, driveways, landscaping, lighting systems, fences, sprinklers, etc.Depreciation: the allocation of the cost of a tangible asset over its service lifeBuildingsAdministrative offices, retail stores, manufacturing facilities, and storage warehousesEquipmentMachinery used in manufacturing, computers and other office equipment, vehicles, furniture, and fixturesRecurring costs not part of the cost of equipmentBasket PurchasesPurchase of more than one asset for one purchase priceAllocate total purchase price based on individual fair valuesNatural ResourcesOil, natural gas, timber, and saltPhysically use up, or depleteDepletion: allocation of the cost of a natural resource over its service lifeIdentical to the activity-based method of recording depreciationLearning Objective 2Identify the Major Types of Intangible Assets7-13Intangible AssetsNo physical substanceCan be very valuableAcquired in two ways:PurchaseCreate internallyPatentsExclusive right to manufacture a product or to use a processGranted for a period of 20 yearsWhen purchased:Capitalized for purchase price plus legal and filing feesWhen internally developed:Capitalized for legal and filing feesCopyrightsExclusive right of protection given to the creator of a published workGranted for the life of the creator plus 70 yearsLegal action against anyone who attempts to infringe the copyrightAccounting is virtually identical to that of patentsTrademarksWord, slogan, or symbol that distinctively identifies a company, product, or serviceRenewed for an indefinite number of 10-year periodsCapitalized for legal, registration, and design fees Advertising costs are recorded as advertising expenseFranchisesLocal outlets that pay for the exclusive right to use the franchisor’s name and to sell its products Within a specified geographical areaMay include other benefitsCapitalized for initial fee Additional periodic payments usually expensed as incurredGoodwillRepresents the value of a company as a whole, over and above the value of its identifiable net assetsRecorded at:Purchase PriceFair value of the netassets acquired–Learning Objective 3Describe the Accounting Treatment of Expenditures After Acquisition7-20Expenditures After AcquisitionRepairs and maintenanceAdditionsImprovementsLegal defense of intangible assetsCapitalizeIf it increasesfuture benefitsExpenseIf it benefits onlythe current periodIllustration 7.7—Expenditures afterAcquisitionMaterialityAn item is said to be material if it is large enough to influence a decisionImmaterial:Costs expensed under a certain dollar amountPart BCost Allocation7-24Learning Objective 4Calculate Depreciation of Property, Plant, and Equipment7-25DepreciationThe process of allocating to an expense the cost of an asset over its service lifeCommon TermsAccumulated depreciation: contra asset account to record the total depreciation taken to dateBook value:Service life: how long the company expects to receive benefits from the asset before disposing of itResidual value: salvage value or the amount the company expects to receive from selling the asset at the end of its service lifeOriginal CostCurrent Balance in Accumulated Depreciation–Depreciation MethodsStraight-line methodDeclining-balance methodActivity-based methodIllustration 7.16 and 7.17—Comparison of Depreciation MethodsTax DepreciationAccelerated methods reduce taxable income more in the earlier years of an asset’s lifeCompanies use: Straight-line method for financial reportingAccelerated method for tax reportingLearning Objective 5Calculate Amortization of Intangible Assets7-31Amortization of Intangible AssetsAllocating the cost of intangible assets to expense is called amortizationIntangible Assets not Subject to AmortizationIntangible assets with indefinite useful livesSubjected to impairment rules Part CAsset Disposition: Sale, Retirement,or Exchange7-34Learning Objective 6Account for the disposal of long-term assets7-35Three Methods of Asset DisposalDisposal of Long-Term AssetsSaleRetirementExchangeCan result in either a gain or a loss Occurs when a long-term asset is no longer useful but cannot be sold Occurs when two companies trade assets Learning Objective 7Describe the Links Among Return on Assets, Profit Margin, and Asset Turnover7-37Return on AssetsIndicates the amount of net income generated for each dollar invested in assetsProfit margin: indicates the earnings per dollar of salesAsset turnover: measures the sales per dollar of assets investedLearning Objective 8Identify Impairment Situations and Describe the Two-Step Impairment Process7-39Asset ImpairmentImpairment: occurs when the future cash flows (future benefits) generated for a long-term asset fall below its book valueRecording the lossIllustration 7.32—Two-Step Impairment ProcessEnd of Chapter 77-42