Kế toán, kiểm toán - Chapter 8: Reporting and interpreting property, plant, and equipment; natural resources; and intangibles

Reporting and InterpretingProperty, Plant, and Equipment; Natural Resources;and IntangiblesChapter 8TangiblePhysicalSubstanceIntangibleNo PhysicalSubstanceClassifying Long-Lived Assets Land Assets subject to depreciation Buildings and equipment Furniture and fixtures Natural resource assets subject to depletion Mineral deposits and timber Definite life Patents Copyrights Franchises Indefinite life Trademarks GoodwillMeasuring and Recording Acquisition CostAcquisition cost includes the purchase price and all expenditures needed to prepare the asset for its intended use.Acquisition cost does not includefinancing charges and cash discounts.BuildingsPurchase priceRenovation and repair costsLegal and realty feesTitle feesMeasuring and RecordingAcquisition CostEquipmentPurchase priceInstallation costsModification to buildingnecessary to install equipmentTransportation costsLandPurchase priceReal estate commissionsTitle insurance premiumsDelinquent taxesSurveying feesTitle search and transfer feesLand is not depreciatedAcquisition by ConstructionAsset cost includes:All materials andlabor traceable tothe construction.A reasonableamount ofoverhead.Interest on debtincurred duringthe construction.Repairs, Maintenance, and AdditionsRepairs, Maintenance, and AdditionsTo solve this problem, many companies have policies regarding the expensing of all expenditures below a certain amount according to the materiality constraint. Depreciation is a cost allocation process that systematically and rationally matches acquisition costs of operational assets with periods benefited by their use. CostAllocation(Unused)Balance Sheet(Used)Income StatementExpenseDepreciation ConceptsAcquisitionCostDepreciationExpenseIncomeStatementBalanceSheetAccumulatedDepreciationDepreciation forthe current yearTotal of depreciationto date on an assetDepreciation Concepts The calculation of depreciation requiresthree amounts for each asset: Acquisition cost. Estimated useful life. Estimated residual value.Alternative depreciation methods: Straight-line Units-of-production Accelerated Method: Declining balanceMeasuring Asset ImpairmentImpairment is the loss of a significant portionof the utility of an asset through . . .Casualty.Obsolescence.Lack of demand for the asset’s services.Recognize aloss whenan assetsuffers apermanentimpairment. Disposal of Property, Plant and EquipmentVoluntary disposals: SaleTrade-inRetirementInvoluntary disposals:Fire Accident Journalize disposal by:Writing off accumulateddepreciation (debit).Writing off the asset cost (credit).Recording cashreceived (debit)or paid (credit).Recording again (credit)or loss (debit). Update depreciation to the date of disposal.Disposal of Property, Plantand EquipmentAcquisition and Depletion of Natural ResourcesExamples: oil, coal, goldExtracted fromthe naturalenvironment.A noncurrentasset presentedat cost lessaccumulateddepletion.Total cost of asset is the costof acquisition, exploration,and development.Total cost isallocated overperiods benefitedby means of depletion.Depletion is like units-of-production depreciation.The unit depletion rate is calculated as follows:Estimated Recoverable Units Acquisition and ResidualDevelopment Cost Value– DepletioncostInventoryfor saleUnsoldInventoryCost ofgoods soldDepletion cost for a period is:UNIT DEPLETIONRATENUMBER OF UNITSEXTRACTED IN PERIOD×Acquisition and Depletion of Natural ResourcesAcquisition and Amortization of Intangible AssetsNoncurrent assetswithout physicalsubstance.Useful life isoften difficultto determine.Usually acquired for operational use. Often provideexclusive rightsor privileges.IntangibleAssets Record at current cash equivalent cost, including purchase price, legal fees, and filing fees.Acquisition and Amortization of Intangible AssetsDefinite LifeAmortize over shorter of economic life or legal life, subject to rules specified by GAAP.Use straight-line method.Indefinite LifeNot amortized.Tested at least annually for possible impairment, and book value is reduced to fair value if impaired.Amortization is a cost allocation process similar to depreciation and depletion.Occurs when onecompany buysanother company.The amount by which the purchase price exceedsthe fair market value of net assets acquired.Only purchased goodwill is an intangible asset.GoodwillAcquisition and Amortization of Intangible AssetsGoodwill is not amortized. Its value must be reviewedat least annually for possible impairment, and thebook value is reduced to fair value if impaired. End of Chapter 8