This document provides an overview of accounting for plant assets, natural resources, and intangible assets. It discusses determining the cost of plant assets, the concept of depreciation, and computing depreciation using different methods. The document also addresses accounting for extractable natural resources and intangible assets, as well as presentation and analysis of these items in financial statements. The overall purpose is to explain the basic accounting issues related to plant assets, natural resources, and intangible assets.
The document discusses accounting for plant assets, natural resources, and intangible assets. It describes how to apply the cost principle to plant assets, explains the concept of depreciation and how to compute it using different methods, and how to account for disposals and revaluations of plant assets. It also covers accounting for natural resource depletion and issues related to intangible assets.
This document discusses various topics relating to financial assets, including cash, marketable securities, receivables, and notes receivable. It provides information on how these assets are valued for financial statements, cash management techniques, accounting for uncollectible accounts receivable, and calculating interest revenue for notes receivable. Worked examples are provided to illustrate estimating credit losses and recording interest earned on a short-term note receivable.
This document discusses capital structure and leverage. It defines key terms like capital structure, financial leverage, operating leverage, degree of financial leverage (DFL), degree of operating leverage (DOL), and degree of total leverage (DTL). It explains how financial and operating leverage can both increase profits but also increase risk and variability in results. The optimal capital structure balances these risks and rewards to maximize stock price.
This document discusses long-term liabilities such as bonds and long-term notes payable. It describes the major characteristics of bonds, including types of bonds and how they are issued. It explains how to account for bond transactions such as issuing bonds at face value, a discount, or premium. It also discusses accounting for long-term notes payable, including recording mortgage notes payable. Finally, it discusses presentation of long-term liabilities on the balance sheet.
The document provides information about adjusting entries for Micro Computer Services for August 2017. It states that accrued revenues of $500 were earned but not recorded for services performed. It also states that accrued expenses of $300 were incurred for unpaid utilities. The adjusting entries would debit Accounts Receivable and credit Service Revenue for $500 to record accrued revenues. For accrued expenses, the adjusting entries would debit Utilities Expense and credit Accounts Payable for $300 to record accrued expenses.
This document provides an overview of accounting for receivables. It defines different types of receivables like accounts receivable and notes receivable. It explains how companies recognize, value, and dispose of both accounts receivable and notes receivable. Specific topics covered include recognizing revenue on credit sales, estimating and recording allowance for doubtful accounts, accounting for uncollectible accounts, determining maturity dates and interest on notes, and presenting receivables on financial statements. The document aims to help students understand the key accounting concepts and entries related to receivables.
The document discusses the statement of cash flows, including its usefulness, format, and how to prepare it using the indirect method. It explains that the statement of cash flows provides information about a company's cash receipts and payments during a period and is separated into operating, investing, and financing activities. It also discusses how to classify transactions and adjust net income to reconcile it to net cash provided by operating activities. Key steps include adding back non-cash expenses, and analyzing changes in current assets and liabilities.
Current Liabilities, Provisions, and Contingenciesreskino1
Current Liabilities,
Provisions, and Contingencies
After studying this chapter, you should be able to:
1. Describe the nature, valuation, and reporting of current liabilities.
2. Explain the accounting for different types of provisions.
3. Explain the accounting for loss and gain contingencies.
4. Indicate how to present and analyze liability-related information
The document discusses accounting for plant assets, natural resources, and intangible assets. It describes how to apply the cost principle to plant assets, explains the concept of depreciation and how to compute it using different methods, and how to account for disposals and revaluations of plant assets. It also covers accounting for natural resource depletion and issues related to intangible assets.
This document discusses various topics relating to financial assets, including cash, marketable securities, receivables, and notes receivable. It provides information on how these assets are valued for financial statements, cash management techniques, accounting for uncollectible accounts receivable, and calculating interest revenue for notes receivable. Worked examples are provided to illustrate estimating credit losses and recording interest earned on a short-term note receivable.
This document discusses capital structure and leverage. It defines key terms like capital structure, financial leverage, operating leverage, degree of financial leverage (DFL), degree of operating leverage (DOL), and degree of total leverage (DTL). It explains how financial and operating leverage can both increase profits but also increase risk and variability in results. The optimal capital structure balances these risks and rewards to maximize stock price.
This document discusses long-term liabilities such as bonds and long-term notes payable. It describes the major characteristics of bonds, including types of bonds and how they are issued. It explains how to account for bond transactions such as issuing bonds at face value, a discount, or premium. It also discusses accounting for long-term notes payable, including recording mortgage notes payable. Finally, it discusses presentation of long-term liabilities on the balance sheet.
The document provides information about adjusting entries for Micro Computer Services for August 2017. It states that accrued revenues of $500 were earned but not recorded for services performed. It also states that accrued expenses of $300 were incurred for unpaid utilities. The adjusting entries would debit Accounts Receivable and credit Service Revenue for $500 to record accrued revenues. For accrued expenses, the adjusting entries would debit Utilities Expense and credit Accounts Payable for $300 to record accrued expenses.
This document provides an overview of accounting for receivables. It defines different types of receivables like accounts receivable and notes receivable. It explains how companies recognize, value, and dispose of both accounts receivable and notes receivable. Specific topics covered include recognizing revenue on credit sales, estimating and recording allowance for doubtful accounts, accounting for uncollectible accounts, determining maturity dates and interest on notes, and presenting receivables on financial statements. The document aims to help students understand the key accounting concepts and entries related to receivables.
The document discusses the statement of cash flows, including its usefulness, format, and how to prepare it using the indirect method. It explains that the statement of cash flows provides information about a company's cash receipts and payments during a period and is separated into operating, investing, and financing activities. It also discusses how to classify transactions and adjust net income to reconcile it to net cash provided by operating activities. Key steps include adding back non-cash expenses, and analyzing changes in current assets and liabilities.
Current Liabilities, Provisions, and Contingenciesreskino1
Current Liabilities,
Provisions, and Contingencies
After studying this chapter, you should be able to:
1. Describe the nature, valuation, and reporting of current liabilities.
2. Explain the accounting for different types of provisions.
3. Explain the accounting for loss and gain contingencies.
4. Indicate how to present and analyze liability-related information
Describe depreciation concepts and methods of depreciation.
Identify other depreciation issues.
Explain the accounting issues related to asset impairment.
Discuss the accounting procedures for depletion of mineral resources.
Apply the accounting for revaluations.
Demonstrate how to report and analyze property, plant, equipment, and mineral resources.
This document discusses stockholders' equity, which is increased in two ways: paid-in capital from investor contributions for stock, and retained earnings from corporate profits. It describes different types of stock like preferred stock and common stock. Preferred stock typically has priority over common stock in dividends and asset distribution. The document also discusses stock splits which increase outstanding shares while decreasing par value, treasury stock which is reacquired shares recorded at cost, and accounting treatment of stocks by issuers and investors.
1) The document discusses accounting for merchandising operations under a perpetual inventory system. It describes how purchases, sales, returns and allowances are recorded.
2) Purchases are recorded by debiting inventory and crediting accounts payable. Sales are recorded by crediting sales revenue and debiting cost of goods sold and inventory.
3) Returns and allowances are contra accounts that are credited to offset original debit entries for purchases or sales. This summary highlights the key accounting entries for a merchandising business.
This document discusses current liabilities, provisions, and contingencies. It begins by outlining the learning objectives, which are to describe various types of current liabilities, explain classification issues related to short-term debt expected to be refinanced, identify types of employee-related liabilities, explain accounting for provisions, and identify criteria for contingent liabilities and assets. It then defines key terms like liability, current liability, and contingencies. Specific types of current liabilities are explained, such as accounts payable, notes payable, current maturities of long-term debt, and unearned revenue. The accounting treatment and examples of these items are provided.
Here are the key steps to solving this problem:
1. Calculate 10% of accounts receivable to estimate uncollectible accounts:
- 10% of $30,000 is 0.1 * $30,000 = $3,000
2. Add the existing balance in the allowance account:
- $2,000 existing balance
3. The total estimated uncollectible accounts is $3,000 + $2,000 = $5,000
Therefore, the adjusting entry is:
Bad Debt Expense 5,000
Allowance for Doubtful Accounts 5,000
Acquisition and Disposition of Property, Plant, and Equipmentreskino1
Identify property, plant, and equipment and its related costs.
Discuss the accounting problems associated with interest capitalization.
Explain accounting issues related to acquiring and valuing plant assets.
Describe the accounting treatment for costs subsequent to acquisition.
Describe the accounting treatment for the disposal of property, plant, and equipment.
Bab 4 Income Statement and Related Informationmsahuleka
The document discusses key elements and objectives related to preparing and understanding income statements, including:
- The uses and limitations of income statements in evaluating past performance and predicting future cash flows
- Components of single-step and multiple-step income statements and how they differ
- Reporting of irregular items like discontinued operations, extraordinary items, and changes in accounting principles
- Intraperiod tax allocation and where earnings per share information is reported
The document discusses key accounting principles such as revenue recognition, matching principle, and adjusting entries. It defines different types of adjusting entries including prepaid expenses, unearned revenues, accrued revenues, and accrued expenses. Examples are provided for journal entries to record accrued revenues and expenses. The summary identifies the major concepts covered in the document which are the different types of adjusting entries and how to prepare adjusting entries for accruals.
This document discusses plant and intangible assets. It defines major categories of plant assets such as land, buildings, equipment, and natural resources. It also defines intangible assets such as patents, copyrights, trademarks, franchises and goodwill. The document outlines the accounting treatment for acquisition, depreciation/depletion, impairment, disposal and revaluation of plant and intangible assets over their useful lives.
This document discusses accounting for property, plant, and equipment. It covers topics such as the initial valuation of PP&E including acquisition costs, costs of self-constructed assets, and accounting for interest costs incurred during construction. The document provides learning objectives for a chapter on acquisition and disposition of PP&E and includes examples and illustrations of accounting for various costs related to PP&E.
Financial statement analysis involves analyzing a company's financial statements to assess its performance and financial position. It is done by both internal managers and external parties such as investors and creditors. Key aspects of financial statement analysis include ratio analysis, trend analysis, and comparative analysis. Ratio analysis calculates and analyzes financial ratios to evaluate aspects such as liquidity, asset efficiency, debt levels, profitability, and investor returns. Trend analysis examines changes in financial metrics over several periods. Comparative analysis compares financial results to other companies or years. The overall goal is to evaluate the company's financial health and identify strengths and weaknesses.
This document summarizes key accounting concepts related to cash, receivables, and related valuation issues. It defines cash and receivables, discusses how to recognize, measure, and present them in financial statements. Specific topics covered include cash controls, restricted cash, cash equivalents, accounts and notes receivable, allowance for doubtful accounts, present value concepts for long-term notes receivable.
ACQUISITION AND DISPOSITION OF PROPERTY, PLANT AND EQUIPMENT.pptJaafar47
The document discusses accounting for property, plant, and equipment. It covers topics such as the costs that should be included in the initial valuation of PP&E like land, buildings, equipment, and self-constructed assets. It also discusses accounting problems related to capitalizing interest costs during construction periods. Specifically, it outlines qualifications for capitalizing interest, how to determine the capitalization period, and how to calculate the amount of interest to capitalize.
Bab 6 - Accounting and the Time Value of Moneymsahuleka
This document discusses accounting topics related to the time value of money, including compound interest, future and present value calculations, annuities, and bond valuation. It provides learning objectives and examples to distinguish between simple and compound interest, use interest tables, solve single-sum and annuity problems, and apply time value of money concepts to accounting measurements.
This document provides an overview of IAS 20, which establishes the accounting requirements for government grants and disclosure of government assistance. It discusses how government grants should be recognized as income or deferred income depending on whether they are related to assets or income. It also covers repayment of grants if conditions are not met and disclosure requirements. The end of chapter practice problems provide examples of accounting for government grants and assistance related to assets, income, and contingencies.
Corporations invest in debt and stock securities for various reasons such as having excess cash or generating investment income. For debt investments, entries are made to record acquisition, interest revenue, and sale. Interest receivable and revenue are reported in financial statements. For stock investments where influence is less than 20%, the cost method is used where investments are recorded at cost and revenue is recognized on cash dividends. For influence between 20-50%, the equity method is used where the investment is adjusted for the investor's share of earnings and dividends. For over 50% influence, consolidated financial statements are prepared. Investments are classified as trading, available-for-sale, or held-to-maturity and reported differently in financial statements.
This document discusses current liabilities and contingencies. It begins by defining a liability and current liability. Typical current liabilities include accounts payable, notes payable, current maturities of long-term debt, short-term obligations expected to be refinanced, dividends payable, customer advances and deposits, unearned revenues, sales taxes payable, and income taxes payable. It also identifies types of employee-related liabilities such as payroll deductions, compensated absences, and bonuses. Additionally, the document explains the classification of short-term debt expected to be refinanced and identifies types of gain and loss contingencies. It concludes by indicating how to present and analyze liabilities and contingencies.
This document summarizes the key requirements of IAS 1 regarding the presentation of financial statements. It outlines the objectives of IAS 1 as ensuring comparability of financial statements over time and between entities. The key components required in a complete set of financial statements are identified as the statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows, and notes. Minimum line items to be presented on each statement are also defined. The document provides guidance on the classification of assets and liabilities as current vs non-current, format and presentation of the statements, and disclosures required in the notes.
Describe and apply the lower-of-cost-or-net realizable value rule.
Identify other inventory valuation issues.
Determine ending inventory by applying the gross profit method.
Determine ending inventory by applying the retail inventory method.
Explain how to report and analyze inventory.
Akuntansi keuangan menengah II pertemuan 2AmiLaksmi2
The document discusses accounting for plant assets, natural resources, and intangible assets. It covers determining the cost of plant assets, the concept of depreciation, computing depreciation using different methods, revising depreciation, accounting for natural resources and intangible assets, and financial statement presentation of these types of assets. The slides include examples of calculating asset costs and depreciation expense using straight-line, units-of-activity, and declining balance methods.
Describe depreciation concepts and methods of depreciation.
Identify other depreciation issues.
Explain the accounting issues related to asset impairment.
Discuss the accounting procedures for depletion of mineral resources.
Apply the accounting for revaluations.
Demonstrate how to report and analyze property, plant, equipment, and mineral resources.
This document discusses stockholders' equity, which is increased in two ways: paid-in capital from investor contributions for stock, and retained earnings from corporate profits. It describes different types of stock like preferred stock and common stock. Preferred stock typically has priority over common stock in dividends and asset distribution. The document also discusses stock splits which increase outstanding shares while decreasing par value, treasury stock which is reacquired shares recorded at cost, and accounting treatment of stocks by issuers and investors.
1) The document discusses accounting for merchandising operations under a perpetual inventory system. It describes how purchases, sales, returns and allowances are recorded.
2) Purchases are recorded by debiting inventory and crediting accounts payable. Sales are recorded by crediting sales revenue and debiting cost of goods sold and inventory.
3) Returns and allowances are contra accounts that are credited to offset original debit entries for purchases or sales. This summary highlights the key accounting entries for a merchandising business.
This document discusses current liabilities, provisions, and contingencies. It begins by outlining the learning objectives, which are to describe various types of current liabilities, explain classification issues related to short-term debt expected to be refinanced, identify types of employee-related liabilities, explain accounting for provisions, and identify criteria for contingent liabilities and assets. It then defines key terms like liability, current liability, and contingencies. Specific types of current liabilities are explained, such as accounts payable, notes payable, current maturities of long-term debt, and unearned revenue. The accounting treatment and examples of these items are provided.
Here are the key steps to solving this problem:
1. Calculate 10% of accounts receivable to estimate uncollectible accounts:
- 10% of $30,000 is 0.1 * $30,000 = $3,000
2. Add the existing balance in the allowance account:
- $2,000 existing balance
3. The total estimated uncollectible accounts is $3,000 + $2,000 = $5,000
Therefore, the adjusting entry is:
Bad Debt Expense 5,000
Allowance for Doubtful Accounts 5,000
Acquisition and Disposition of Property, Plant, and Equipmentreskino1
Identify property, plant, and equipment and its related costs.
Discuss the accounting problems associated with interest capitalization.
Explain accounting issues related to acquiring and valuing plant assets.
Describe the accounting treatment for costs subsequent to acquisition.
Describe the accounting treatment for the disposal of property, plant, and equipment.
Bab 4 Income Statement and Related Informationmsahuleka
The document discusses key elements and objectives related to preparing and understanding income statements, including:
- The uses and limitations of income statements in evaluating past performance and predicting future cash flows
- Components of single-step and multiple-step income statements and how they differ
- Reporting of irregular items like discontinued operations, extraordinary items, and changes in accounting principles
- Intraperiod tax allocation and where earnings per share information is reported
The document discusses key accounting principles such as revenue recognition, matching principle, and adjusting entries. It defines different types of adjusting entries including prepaid expenses, unearned revenues, accrued revenues, and accrued expenses. Examples are provided for journal entries to record accrued revenues and expenses. The summary identifies the major concepts covered in the document which are the different types of adjusting entries and how to prepare adjusting entries for accruals.
This document discusses plant and intangible assets. It defines major categories of plant assets such as land, buildings, equipment, and natural resources. It also defines intangible assets such as patents, copyrights, trademarks, franchises and goodwill. The document outlines the accounting treatment for acquisition, depreciation/depletion, impairment, disposal and revaluation of plant and intangible assets over their useful lives.
This document discusses accounting for property, plant, and equipment. It covers topics such as the initial valuation of PP&E including acquisition costs, costs of self-constructed assets, and accounting for interest costs incurred during construction. The document provides learning objectives for a chapter on acquisition and disposition of PP&E and includes examples and illustrations of accounting for various costs related to PP&E.
Financial statement analysis involves analyzing a company's financial statements to assess its performance and financial position. It is done by both internal managers and external parties such as investors and creditors. Key aspects of financial statement analysis include ratio analysis, trend analysis, and comparative analysis. Ratio analysis calculates and analyzes financial ratios to evaluate aspects such as liquidity, asset efficiency, debt levels, profitability, and investor returns. Trend analysis examines changes in financial metrics over several periods. Comparative analysis compares financial results to other companies or years. The overall goal is to evaluate the company's financial health and identify strengths and weaknesses.
This document summarizes key accounting concepts related to cash, receivables, and related valuation issues. It defines cash and receivables, discusses how to recognize, measure, and present them in financial statements. Specific topics covered include cash controls, restricted cash, cash equivalents, accounts and notes receivable, allowance for doubtful accounts, present value concepts for long-term notes receivable.
ACQUISITION AND DISPOSITION OF PROPERTY, PLANT AND EQUIPMENT.pptJaafar47
The document discusses accounting for property, plant, and equipment. It covers topics such as the costs that should be included in the initial valuation of PP&E like land, buildings, equipment, and self-constructed assets. It also discusses accounting problems related to capitalizing interest costs during construction periods. Specifically, it outlines qualifications for capitalizing interest, how to determine the capitalization period, and how to calculate the amount of interest to capitalize.
Bab 6 - Accounting and the Time Value of Moneymsahuleka
This document discusses accounting topics related to the time value of money, including compound interest, future and present value calculations, annuities, and bond valuation. It provides learning objectives and examples to distinguish between simple and compound interest, use interest tables, solve single-sum and annuity problems, and apply time value of money concepts to accounting measurements.
This document provides an overview of IAS 20, which establishes the accounting requirements for government grants and disclosure of government assistance. It discusses how government grants should be recognized as income or deferred income depending on whether they are related to assets or income. It also covers repayment of grants if conditions are not met and disclosure requirements. The end of chapter practice problems provide examples of accounting for government grants and assistance related to assets, income, and contingencies.
Corporations invest in debt and stock securities for various reasons such as having excess cash or generating investment income. For debt investments, entries are made to record acquisition, interest revenue, and sale. Interest receivable and revenue are reported in financial statements. For stock investments where influence is less than 20%, the cost method is used where investments are recorded at cost and revenue is recognized on cash dividends. For influence between 20-50%, the equity method is used where the investment is adjusted for the investor's share of earnings and dividends. For over 50% influence, consolidated financial statements are prepared. Investments are classified as trading, available-for-sale, or held-to-maturity and reported differently in financial statements.
This document discusses current liabilities and contingencies. It begins by defining a liability and current liability. Typical current liabilities include accounts payable, notes payable, current maturities of long-term debt, short-term obligations expected to be refinanced, dividends payable, customer advances and deposits, unearned revenues, sales taxes payable, and income taxes payable. It also identifies types of employee-related liabilities such as payroll deductions, compensated absences, and bonuses. Additionally, the document explains the classification of short-term debt expected to be refinanced and identifies types of gain and loss contingencies. It concludes by indicating how to present and analyze liabilities and contingencies.
This document summarizes the key requirements of IAS 1 regarding the presentation of financial statements. It outlines the objectives of IAS 1 as ensuring comparability of financial statements over time and between entities. The key components required in a complete set of financial statements are identified as the statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows, and notes. Minimum line items to be presented on each statement are also defined. The document provides guidance on the classification of assets and liabilities as current vs non-current, format and presentation of the statements, and disclosures required in the notes.
Describe and apply the lower-of-cost-or-net realizable value rule.
Identify other inventory valuation issues.
Determine ending inventory by applying the gross profit method.
Determine ending inventory by applying the retail inventory method.
Explain how to report and analyze inventory.
Akuntansi keuangan menengah II pertemuan 2AmiLaksmi2
The document discusses accounting for plant assets, natural resources, and intangible assets. It covers determining the cost of plant assets, the concept of depreciation, computing depreciation using different methods, revising depreciation, accounting for natural resources and intangible assets, and financial statement presentation of these types of assets. The slides include examples of calculating asset costs and depreciation expense using straight-line, units-of-activity, and declining balance methods.
This document discusses accounting for long-lived assets such as plant, property, and equipment. It covers topics such as:
- Plant assets are recorded at historical cost and depreciated over their useful lives, except for land which is not depreciated.
- Depreciation methods include straight-line, declining balance, and units-of-activity, and allocate the cost of an asset over its useful life.
- Periodic depreciation expense can be revised due to changes in estimated useful life or salvage value, which are changes in accounting estimates affecting the current period and future periods.
- Long-lived assets are presented on the balance sheet net of accumulated depreciation. Notes to the financial statements
What is 'Property, Plant And Equipment - PP&E'
Property, plant and equipment (PP&E) is a company asset that is vital to business operations but cannot be easily liquidated, and depending on the nature of a company's business, the total value of PP&E can range from very low to extremely high compared to total assets. International accounting standard 16 deals with the accounting treatment of PP&E. It is listed separately in most financial statements because it is treated differently in accounting statements, and improvements, replacements and betterments can pose accounting issues depending on how the costs are recorded.
BREAKING DOWN 'Property, Plant And Equipment - PP&E'
PP&E is also called tangible fixed assets. These assets are physical, tangible assets and they are expected to generate economic benefits for a company for a period of longer than one year. Examples of PP&E include land, buildings and vehicles. Industries or businesses that require a large amount of fixed assets are described as capital intensive.
Financial Statement Record
PP&E is recorded in a company's financial statements in the balance sheet. The cost of PP&E considers the actual cost of purchasing and bringing the asset to its intended use. This cost is called the historical cost. For example, when purchasing a building for a company to run its retail operations, the historical cost could include the purchase price, transaction fees and any improvements made to the building to bring it to its destined use. The value of PP&E is adjusted routinely as fixed assets generally see a decline in value due to use and depreciation. Amortization is used to devalue these assets as they are used, but land is not amortized because it can increase in value. Instead, it is represented at current market value. The balance of the PP&E account is remeasured every reporting period, and, after accounting for historical cost and amortization, is called the book value. This figure is reported on the balance sheet. #ucp
This document provides an overview of accounting for plant assets, natural resources, and intangible assets. It covers determining the cost of plant assets, depreciation methods including straight-line, units-of-activity, and declining balance, revising depreciation estimates, distinguishing between capital and expense expenditures, accounting for disposals of plant assets, depletion of natural resources, and issues related to intangible assets. The objectives are presented in 9 points covering these major topics.
This document provides an overview of long-lived tangible and intangible assets. It defines long-lived assets as assets with useful lives longer than one year that are used in operations. It discusses acquisition and capitalization of costs, depreciation methods to allocate costs over the asset's useful life, impairment, disposal, and ratios to analyze long-lived assets. The learning objectives cover defining and classifying long-lived assets, applying the cost principle, depreciation methods, impairment effects, and analyzing acquisition, use and disposal of tangible and intangible long-lived assets.
- Plant and intangible assets are long-lived assets acquired for use in business operations, similar to long-term prepaid expenses. The cost is allocated to expense over the asset's useful life through depreciation.
- Major categories of plant assets include tangible assets like land, buildings, equipment, and furniture, as well as intangible assets without physical substance like patents and goodwill.
- Plant asset costs include acquisition costs and costs to prepare the asset for use, such as shipping, installation, and testing. Cost is allocated to the asset through depreciation expense over the asset's useful life.
- Plant and intangible assets are long-lived assets acquired for use in business operations, similar to long-term prepaid expenses. The cost is allocated to expense over the asset's useful life through depreciation.
- Major categories of plant assets include tangible assets like land, buildings, equipment, and furniture, as well as intangible assets without physical substance like patents and goodwill.
- Plant asset costs include acquisition costs and costs to prepare the asset for use, such as shipping, installation, and testing. Cost is allocated to the asset through depreciation expense over the asset's useful life.
This document summarizes key concepts related to accounting for long-lived assets. It explains that plant assets should be recorded at cost and depreciated over their useful lives using methods like straight-line or declining-balance. Depreciation is allocated to expense the asset's cost over its useful life. When assets are disposed, any difference between book value and proceeds is recorded as a gain or loss. Ratios can evaluate asset usage. Intangible assets with limited lives are amortized, while those with indefinite lives are not.
396
Chapter
Plant Assets, Natural
Resources, and
Intangible Assets
After studying this chapter, you should be
able to:
1 Describe how the cost principle applies
to plant assets.
2 Explain the concept of depreciation.
3 Compute periodic depreciation using
different methods.
4 Describe the procedure for revising
periodic depreciation.
5 Distinguish between revenue and
capital expenditures, and explain the
entries for each.
6 Explain how to account for the disposal
of a plant asset.
7 Compute periodic depletion of natural
resources.
8 Explain the basic issues related to
accounting for intangible assets.
9 Indicate how plant assets, natural
resources, and intangible assets are
reported.
S T U D Y O B J E C T I V E S
Feature Story
The Navigator✓
9
HOW MUCH FOR A RIDE TO THE BEACH?
It’s spring break. Your plane has landed, you’ve finally found your bags, and
you’re dying to hit the beach—but first you need a “vehicular unit” to get
Scan Study Objectives ■
Read Feature Story ■
Read Preview ■
Read text and answer
p. 402 ■ p. 409 ■ p. 412 ■ p. 417 ■
Work Comprehensive p. 421 ■
p. 422 ■
Review Summary of Study Objectives ■
Answer Self-Study Questions ■
Complete Assignments ■
The Navigator✓
Do it!
Do it!
JWCL165_c09_396-443.qxd 8/4/09 9:39 PM Page 396
397
you there. As you turn
away from baggage claim
you see a long row of
rental agency booths.
Many are names you are
familiar with—Hertz, Avis,
and Budget. But a booth
at the far end catches your
eye—Rent-A-Wreck
(www.rent-a-wreck.com).
Now there’s a company
making a clear statement!
Any company that relies
on equipment to generate
revenues must make decisions about what kind of equipment to buy, how
long to keep it, and how vigorously to maintain it. Rent-A-Wreck has decided
to rent used rather than new cars and trucks. It rents these vehicles across
the United States, Europe, and Asia. While the big-name agencies push
vehicles with that “new car smell,” Rent-A-Wreck competes on price. The
message is simple: Rent a used car and save some cash. It’s not a message
that appeals to everyone. If you’re a marketing executive wanting to impress
a big client, you probably don’t want to pull up in a Rent-A-Wreck car. But if
you want to get from point A to point B for the minimum cash per mile, then
they are playing your tune. The company’s message seems to be getting
across to the right clientele. Revenues have increased significantly.
When you rent a car from Rent-A-Wreck, you are renting from an independ-
ent business person who has paid a “franchise fee” for the right to use the
Rent-A-Wreck name. In order to gain a franchise, he or she must meet finan-
cial and other criteria, and must agree to run the rental agency according to
rules prescribed by Rent-A-Wreck. Some of these rules require that each fran-
chise maintain its cars in a reasonable fashion. This ensures that, though you
won’t be cruising down Daytona Beach’s Atlantic Avenue in a Mercedes con-
ver.
This document discusses different methods for depreciating plant and equipment assets over time. It introduces straight-line depreciation, which allocates the cost of an asset evenly over its estimated useful life. It also covers half-year depreciation conventions for assets acquired during the year, and the double-declining balance method, which takes higher depreciation in early years by using twice the straight-line rate. The document provides examples of calculating depreciation expense using these different methods.
The document provides information on classifying, measuring, recording, and reporting on long-lived assets including property, plant, and equipment, natural resources, and intangibles. It discusses the different depreciation methods including straight-line, units-of-production, and declining balance. The document also covers asset impairment, disposals of long-lived assets, and international differences between US GAAP and IFRS reporting standards.
Chapter 10 ASSETS NATURAL RESOURCES AND INTANGIBLE ASSETS.pptJemalSeid25
This document provides an overview and learning objectives for Chapter 10 of a financial accounting textbook. The chapter covers accounting for plant assets, natural resources, and intangible assets. It discusses determining the cost of plant assets, different depreciation methods including straight-line and units-of-activity, accounting for expenditures on assets during their useful lives, disposal of assets, depletion of natural resources, and reporting of these asset types.
The document discusses accounting for property, plant, equipment, and intangible assets. It covers topics like cost allocation, depreciation methods, impairment testing, and accounting for changes and errors. The document provides examples and exercises to illustrate accounting for asset utilization and impairment.
This document discusses plant and intangible assets. It defines plant assets as long-lived assets acquired for use in business operations, similar to long-term prepaid expenses where the cost is transferred to expense over the years the assets are used. The major categories of plant assets are tangible assets like land, buildings, equipment and furniture and intangible assets without physical substance like patents and goodwill. The document also discusses the accounting events related to plant assets of acquisition, depreciation, and sale or disposal.
AssignmentComplete the following problems You must show your.docxssuser562afc1
Assignment:
Complete the following problems: You must show your work and complete both problems to get any credit!
1) (Chapter 10) Identify which of the following costs are fixed and which are variable:
a) Electricity for machinery in a plant
b) Sales commission
c) Property taxes on a factory building
d) Property taxes on an administrative building
e) Factory fire insurance
f) Regular maintenance on machinery and equipment
g) Wages paid to temporary or seasonal workers
h) Salaries paid to design engineers
i) Heat and air conditioning in a plant
j) Basic raw materials used in production
2) (Chapter 11) A machine costing $80,000 to buy and $6,000 per year to operate will save mainly labor expenses in packaging over five years. The anticipated salvage value of the machine at the end of five years is $4,000.
a) If a 12% return of investment (rate of return) is desired, what is the minimum required annual savings in labor from this machine?
b) If the service life is four years instead of five, what is the minimum required annual savings in labor for the firm to realize a 12% return on investment?
c) If the annual operating cost increases 10%, say from $6,000 to $6,600, what will happen to the answer in (a)?
Formatting:
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Park 9
Accounting for Depreciation
Depreciation
Depreciation is the loss of value of fixed assets over time.
Depreciation accounting is to account for the cost of fixed assets in a pattern that matches their decline in value over time.
The process of depreciating an asset requires that we know some things:
What is the cost of the asset?
What is the depreciable life of the asset?
What is the asset’s value at the end of its useful life?
What method of depreciation do we choose?
Depreciable Property
A depreciable asset is property for which a firm may take depreciation deductions against income.
U.S tax law requires the depreciable property must:
Be used in business or held for the production of income
Have a definite service life, which must be longer than 1 year
Be something that wears out, decays, gets used up, becomes obsolete, or loses value from natural causes
Depreciable Property
Depreciable property includes buildings, machinery, equipment, vehicles, a ...
This document discusses accounting for plant and intangible assets. It covers determining the cost of plant assets, capital vs expense expenditures, depreciation methods including straight-line and declining balance, accounting for disposals and impairments, nature of intangible assets including goodwill, depletion of natural resources, and cash flows from plant transactions.
This document provides an overview of accounting for non-current assets including initial recognition, subsequent measurement, revaluations, impairments, and disposals. It discusses the initial costs included in the purchase or construction of non-current assets. It also describes how assets are depreciated or amortized over their useful lives using methods like straight-line and declining balance. The document outlines the accounting entries for revaluations of assets and impairments. It discusses how to account for donated or gifted non-current assets. Finally, it provides examples of calculating depreciation expense and recording revaluations and impairments.
Similar to 09 plantassetsnaturalresourcesandintangibleassets (20)
3. Study Objectives
Study Objectives
1. Describe how the cost principle applies to plant assets.
2. Explain the concept of depreciation.
3. Compute periodic depreciation using different methods.
4. Describe the procedure for revising periodic depreciation.
5. Distinguish between revenue and capital expenditures, and
explain the entries for each.
6. Explain how to account for the disposal of a plant asset.
7. Compute periodic depletion of extractable natural resources.
8. Explain the basic issues related to accounting for intangible
assets.
9. Indicate how plant assets, natural resources, and intangible
assets are reported.
Slide
9-3
4. Plant Assets, Natural Resources, and Intangible
Plant Assets, Natural Resources, and Intangible
Assets
Assets
Statement
Statement
Natural
Natural Intangible
Intangible
Plant Assets
Plant Assets Presentation and
Presentation and
Resources
Resources Assets
Assets
Analysis
Analysis
Determining the Accounting for Accounting for Presentation
cost of plant extractable intangibles Analysis
assets natural resources Types of
Depreciation Financial intangibles
Revaluation of statement Research and
plant assets presentation development
Expenditures costs
during useful life
Plant asset
disposals
Slide
9-4
5. Section 1 – Plant Assets
Section 1 – Plant Assets
Plant assets include land, land improvements, buildings,
and equipment (machinery, furniture, tools).
Major characteristics include:
“Used in operations” and not for resale.
Long-term in nature and usually depreciated.
Possess physical substance.
Referred to as property, plant, and equipment; plant and
equipment; and fixed assets.
Slide
9-5
6. Section 1 – Plant Assets
Section 1 – Plant Assets
Illustration 9-1
Percentages of plant assets
in relation to total assets
Slide
9-6
7. Determining the Cost of Plant Assets
Determining the Cost of Plant Assets
Land
Includes all costs to acquire land and ready it for use.
Costs typically include:
(1) purchase price;
(2) closing costs, such as title and attorney’s fees;
(3) real estate brokers’ commissions;
(4) costs of grading, filling, draining, and clearing;
(5) assumption of any liens, mortgages, or encumbrances on
the property.
Slide
9-7
SO 1 Describe how the cost principle applies to plant assets.
8. Determining the Cost of Plant Assets
Determining the Cost of Plant Assets
Illustration: Assume that Hayes Manufacturing Company
acquires real estate at a cash cost of $100,000. The property
contains an old warehouse that is razed at a net cost of $6,000
($7,500 in costs less $1,500 proceeds from salvaged materials).
Additional expenditures are the attorney’s fee, $1,000, and the
real estate broker’s commission, $8,000. The cost of the land is
$115,000, computed as follows.
Required: Determine amount to be reported as the cost of the
land.
Slide
9-8
SO 1 Describe how the cost principle applies to plant assets.
9. Determining the Cost of Plant Assets
Determining the Cost of Plant Assets
Required: Determine amount to be reported as the cost of the
land.
Land
Cash price of property of $100,000 $100,000
Net removal cost of warehouse of $6,000 6,000
Attorney's fees of $1,000 1,000
Real estate broker’s commission of $8,000 8,000
Cost of Land $115,000
Journal Entry
Land 115,000
Cash 115,000
Slide
9-9
SO 1 Describe how the cost principle applies to plant assets.
10. Determining the Cost of Plant Assets
Determining the Cost of Plant Assets
Land Improvements
All expenditures necessary to make the improvements
ready for their intended use.
Driveways, parking lots, fences, landscaping, and
underground sprinklers.
Limited useful lives.
Expense (depreciate) the cost of land improvements
over their useful lives.
Slide
9-10
SO 1 Describe how the cost principle applies to plant assets.
11. Determining the Cost of Plant Assets
Determining the Cost of Plant Assets
Buildings
All costs related directly to purchase or construction.
Purchase costs:
Purchase price, closing costs and real estate broker’s
commission.
Remodeling and replacing or repairing the roof, floors,
electrical wiring, and plumbing.
Construction costs:
Contract price plus payments for architects’ fees, building
permits, and excavation costs.
Slide
9-11
SO 1 Describe how the cost principle applies to plant assets.
12. Determining the Cost of Plant Assets
Determining the Cost of Plant Assets
Equipment
All costs incurred in acquiring the equipment and
preparing it for use.
Costs typically include:
purchase price,
sales taxes,
freight and handling charges,
insurance on the equipment while in transit,
assembling and installation costs, and
costs of conducting trial runs.
Slide
9-12
SO 1 Describe how the cost principle applies to plant assets.
13. Determining the Cost of Plant Assets
Determining the Cost of Plant Assets
Illustration: Assume Merten Company purchases factory
machinery at a cash price of $50,000. Related expenditures are
for sales taxes $3,000, insurance during shipping $500, and
installation and testing $1,000. Determine amount to be
reported as the cost of the machinery. Machinery
Cash price $50,000
Sales taxes 3,000
Insurance during shipping 500
Installation and testing 1,000
Cost of Machinery $54,500
Slide
9-13
SO 1 Describe how the cost principle applies to plant assets.
15. Depreciation
Depreciation
Depreciation is the process of allocating the cost of
tangible assets to expense in a systematic and rational
manner to those periods expected to benefit from the use
of the asset.
Process of cost allocation, not asset valuation.
Applies to land improvements, buildings, and
equipment, not land.
Depreciable, because the revenue-producing ability of
asset will decline over the asset’s useful life.
Slide
9-15
SO 2 Explain the concept of depreciation.
16. Depreciation
Depreciation
Factors in Computing Depreciation
Illustration 9-6
Cost Useful Life Residual Value
Slide
9-16
SO 2 Explain the concept of depreciation.
17. Depreciation
Depreciation
Depreciation Methods
Objective is to select the method that best measures an
asset’s contribution to revenue over its useful life.
Examples include:
(1) Straight-line method.
(2) Units-of-Activity method.
(3) Declining-balance method.
Slide
9-17
SO 3 Compute periodic depreciation using different methods.
18. Depreciation
Depreciation
Illustration: Barb’s Florists purchased a small delivery truck on
January 1, 2011.
Illustration 9-7
Required: Compute depreciation using the following.
(a) Straight-Line (b) Units-of-Activity (c) Declining Balance.
Slide
9-18
SO 3 Compute periodic depreciation using different methods.
19. Depreciation
Depreciation
Straight-Line
Expense is same amount for each year.
Depreciable cost - cost of the asset less its residual
value. Illustration 9-8
Slide
9-19
SO 3 Compute periodic depreciation using different methods.
21. Depreciation
Depreciation
Units-of-Activity
Companies estimate total units of activity to calculate
depreciation cost per unit.
Expense varies based on units of activity.
Illustration 9-10
Depreciable cost is
cost less residual
value.
Slide
9-21
SO 3 Compute periodic depreciation using different methods.
22. Depreciation
Depreciation
Illustration: (Units-of-Activity Method)
Units Annual Illustration 9-11
of Cost / Depreciation Accumulated Book
Year Activity x Unit = Expense Depreciation Value
2011 15,000 $ 0.12 $ 1,800 $ 1,800 $ 11,200
2012 30,000 0.12 3,600 5,400 7,600
2013 20,000 0.12 2,400 7,800 5,200
2014 25,000 0.12 3,000 10,800 2,200
2015 10,000 0.12 1,200 12,000 1,000
2011 Depreciation expense 1,800
Journal
Entry Accumulated depreciation 1,800
Slide
9-22
SO 3 Compute periodic depreciation using different methods.
23. Depreciation
Depreciation
Declining-Balance
Decreasing annual depreciation expense over the asset’s
useful life.
Declining-balance rate is double the straight-line rate.
Rate applied to book value.
Illustration 9-12
Slide
9-23
SO 3 Compute periodic depreciation using different methods.
24. Depreciation
Depreciation
Illustration: (Declining-Balance Method)
Declining Annual Illustration 9-13
Beginning Balance Deprec. Accum. Book
Year Book value x Rate = Expense Deprec. Value
2011 13,000 40% $ 5,200 $ 5,200 $ 7,800
2012 7,800 40 3,120 8,320 4,680
2013 4,680 40 1,872 10,192 2,808
2014 2,808 40 1,123 11,315 1,685
2015 1,685 40 685* 12,000 1,000
2011 Depreciation expense 5,200
Journal
Entry Accumulated depreciation 5,200
Slide * Computation of $674 ($1,685 x 40%) is adjusted to $685.
9-24
25. Depreciation
Depreciation
Comparison of Methods
Illustration 9-14
Illustration 9-15
Slide
9-25
SO 3 Compute periodic depreciation using different methods.
26. Depreciation
Depreciation
Review Question
Depreciation is a process of:
a. valuation.
b. cost allocation.
c. cash accumulation.
d. appraisal.
Slide
9-26
SO 3 Compute periodic depreciation using different methods.
27. Depreciation for Partial Year
Depreciation for Partial Year
The following four slides are included to illustrate the
calculation of partial-year depreciation expense.
The amounts are consistent with the previous slides
illustrating the calculation of depreciation expense.
Slide
9-27
SO 3 Compute periodic depreciation using different methods.
28. Depreciation for Partial Year
Depreciation for Partial Year
Illustration: Barb’s Florists purchased a small delivery truck on
October 1, 2011.
Illustration 9-7
Required: Compute depreciation using the following.
(a) Straight-Line (b) Units-of-Activity (c) Declining Balance.
Slide
9-28
SO 3 Compute periodic depreciation using different methods.
29. Depreciation for Partial Year
Depreciation for Partial Year
Illustration: (Straight-line Method)
Current
Depreciable Annual Partial Year Accum.
Year Cost Rate Expense Year Expense Deprec.
2011 $ 12,000 x 20% = $ 2,400 x 3/12 = $ 600 $ 600
2012 12,000 x 20% = 2,400 2,400 3,000
2013 12,000 x 20% = 2,400 2,400 5,400
2014 12,000 x 20% = 2,400 2,400 7,800
2015 12,000 x 20% = 2,400 2,400 10,200
2016 12,000 x 20% = 2,400 x 9/12 = 1,800 12,000
$ 12,000
Journal entry:
2011 Depreciation expense 600
Accumultated depreciation 600
Slide
9-29
SO 3 Compute periodic depreciation using different methods.
30. Depreciation for Partial Year
Depreciation for Partial Year
Illustration: (Units-of-Activity Method) Illustration 9-12
Hours Cost / Annual Accum. Book
Year Used x Unit = Expense Deprec. Value
2011 15,000 $ 0.12 $ 1,800 $ 1,800 $ 11,200
2012 30,000 0.12 3,600 5,400 7,600
2013 20,000 0.12 2,400 7,800 5,200
2014 25,000 0.12 3,000 10,800 2,200
2015 10,000 0.12 1,200 12,000 1,000
2011 Depreciation expense 1,800
Journal
Entry Accumulated depreciation 1,800
Slide
9-30
SO 3 Compute periodic depreciation using different methods.
31. Depreciation for Partial Year
Depreciation for Partial Year
Illustration: (Declining-Balance Method)
Declining Current
Beginning Balance Annual Partial Year Accum.
Year Book Value Rate Expense Year Expense Deprec.
2011 $ 13,000 x 40% = $ 5,200 x 3/12 = $ 1,300 $ 1,300
2012 11,700 x 40% = 4,680 4,680 5,980
2013 7,020 x 40% = 2,808 2,808 8,788
2014 4,212 x 40% = 1,685 1,685 10,473
2015 2,527 x 40% = 1,011 1,011 11,484
2016 1,516 x 40% = 607 Plug 516 12,000
$ 12,000
Journal entry:
2011 Depreciation expense 1,300
Accumultated depreciation 1,300
Slide
9-31
SO 3 Compute periodic depreciation using different methods.
32. Depreciation
Depreciation
Depreciation and Income Taxes
Tax laws often do not require the taxpayer to use the
same depreciation method on the tax return that is used
in preparing financial statements.
Many corporations use straight-line in their financial
statements to maximize net income. At the same time,
they use an accelerated-depreciation method on their
tax returns to minimize their income taxes.
Slide
9-32
SO 3 Compute periodic depreciation using different methods.
33. Depreciation
Depreciation
Revising Periodic Depreciation
Accounted for in the period of change and future
periods (Change in Estimate).
Not handled retrospectively.
Not considered error.
Slide
9-33
SO 4 Describe the procedure for revising periodic depreciation.
34. Depreciation
Depreciation
Illustration: Assume that Barb’s Florists decides on January 1,
2014, to extend the useful life of the truck one year because of
its excellent condition. The company has used the straight-line
method to depreciate the asset to date, and book value is
$5,800 ($13,000 - $7,200).
Questions:
1. What is the journal entry to correct No Entry
the prior years’ depreciation? Required
2. Calculate the depreciation expense
for 2014.
Slide
9-34
SO 4 Describe the procedure for revising periodic depreciation.
35. Depreciation
Depreciation
Book value, 1/1/14 $5,800 First,
First,
Residual value - 1,000 establish
establish
Book Value
Book Value
Depreciable cost 4,800
at the date of
at the date of
Useful life (revised) / 3 years change in
change in
Annual depreciation $ 1,600 estimate.
estimate.
Illustration 9-17
Journal entry for 2014
Depreciation expense 1,600
Accumulated depreciation 1,600
Slide
9-35
SO 4 Describe the procedure for revising periodic depreciation.
36. Depreciation
Depreciation
Review Question
When there is a change in estimated depreciation:
a. previous depreciation should be corrected.
b. current and future years’ depreciation should be
revised.
c. only future years’ depreciation should be revised.
d. None of the above.
Slide
9-36
SO 4 Describe the procedure for revising periodic depreciation.
37. Revaluation of Plant Assets
Revaluation of Plant Assets
IFRS allows revaluation of plant assets to fair value
If revaluation is used, it must be applied to all assets in
a class of assets.
Assets that are experiencing rapid price changes must
be revalued on an annual basis, otherwise less
frequent revaluation is acceptable.
Slide
9-37
SO 4 Describe the procedure for revising periodic depreciation.
38. Revaluation of Plant Assets
Revaluation of Plant Assets
Illustration: Pernice Company applies revaluation to plant
assets with a carrying value of $1,000,000, a useful life of 5
years, and no residual value. Pernice makes the following
journal entries in year 1, assuming straight-line depreciation.
Depreciation expense 200,000
Accumulated depreciation 200,000
After this entry, Pernice’s plant assets have a carrying amount
of $800,000 ($1,000,000 - $200,000).
Slide
9-38
SO 4 Describe the procedure for revising periodic depreciation.
39. Revaluation of Plant Assets
Revaluation of Plant Assets
Illustration: At the end of year 1, independent appraisers
determine that the asset has a fair value of $850,000. To report
the plant assets at fair value, Pernice makes the following entry.
Accumulated depreciation 200,000
Plant assets 150,000
Revaluation surplus 50,000
Revaluation surplus is an example of an item reported as other
comprehensive income, as discussed in Chapter 5.
Slide
9-39
SO 4 Describe the procedure for revising periodic depreciation.
40. Revaluation of Plant Assets
Revaluation of Plant Assets
Pernice now reports the following information in its statement of
financial position at the end of year 1.
Illustration 9-18
$850,000 is the new basis of the asset. Pernice reports depreciation
expense of $200,000 in the income statement and $50,000 in other
comprehensive income. Depreciation in year 2 will be $212,500
($850,000 / 4).
Slide
9-40
SO 4 Describe the procedure for revising periodic depreciation.
41. Expenditures During Useful Life
Expenditures During Useful Life
Ordinary Repairs - expenditures to maintain the operating
efficiency and productive life of the unit.
Debit - Repair (or Maintenance) Expense.
Referred to as revenue expenditures.
Additions and Improvements - costs incurred to increase
the operating efficiency, productive capacity, or useful life of a
plant asset.
Debit - the plant asset affected.
Referred to as capital expenditures.
Slide SO 5 Distinguish between revenue and capital expenditures,
9-41 and explain the entries for each.
42. Plant Asset Disposals
Plant Asset Disposals
Companies dispose of plant assets in three ways —
Retirement, Sale, or Exchange (appendix).
Illustration 9-19
Record depreciation up to the date of disposal.
Eliminate asset by (1) debiting Accumulated Depreciation, and
(2) crediting the asset account.
Slide
9-42
SO 6 Explain how to account for the disposal of a plant asset.
43. Plant Asset Disposals -- Retirement
Plant Asset Disposals Retirement
Retirement of Plant Assets
Illustration: Assume that Hobart Enterprises retires
its computer printers, which cost $32,000. The accumulated
depreciation on these printers is $32,000. The journal entry to
record this retirement is:
Accumulated depreciation 32,000
Printing equipment 32,000
Question: What happens if a fully depreciated plant asset is still useful
to the company?
Slide
9-43
SO 6 Explain how to account for the disposal of a plant asset.
44. Plant Asset Disposals -- Retirement
Plant Asset Disposals Retirement
Illustration: Assume that Sunset Company discards delivery
equipment that cost $18,000 and has accumulated
depreciation of $14,000. The journal entry is:
Accumulated depreciation 14,000
Loss on disposal 4,000
Delivery equipment 18,000
Companies report a loss on disposal in the “Other income and
expense” section of the income statement.
Slide
9-44
SO 6 Explain how to account for the disposal of a plant asset.
45. Plant Asset Disposals
Plant Asset Disposals
Sale of Plant Assets
Compare the book value of the asset with the proceeds
received from the sale.
If proceeds exceed the book value, a gain on disposal
occurs.
If proceeds are less than the book value, a loss on
disposal occurs.
Slide
9-45
SO 6 Explain how to account for the disposal of a plant asset.
46. Plant Asset Disposals -- Sale
Plant Asset Disposals Sale
Gain on Disposal
Illustration: Assume that on July 1, 2011, Wright Company
sells office furniture for $16,000 cash. The office furniture
originally cost $60,000. As of January 1, 2011, it had
accumulated depreciation of $41,000. Depreciation for the first
six months of 2011 is $8,000. Prepare the journal entry to record
depreciation expense up to the date of sale.
Depreciation expense 8,000
Accumulated depreciation 8,000
Slide
9-46
SO 6 Explain how to account for the disposal of a plant asset.
47. Plant Asset Disposals -- Sale
Plant Asset Disposals Sale
Illustration 9-20
Computation of gain on
disposal
Illustration: Wright records the sale as follows.
July 1 Cash 16,000
Accumulated depreciation 49,000
Office equipment 60,000
Gain on disposal 5,000
Slide
9-47
SO 6 Explain how to account for the disposal of a plant asset.
48. Plant Asset Disposals -- Sale
Plant Asset Disposals Sale
Loss on Disposal Illustration 9-21
Computation of loss on disposal
Illustration: Assume
that instead of selling
the office furniture for
$16,000, Wright sells it
for $9,000.
July 1 Cash 9,000
Accumulated depreciation 49,000
Office equipment 60,000
Loss on disposal 5,000
Slide
9-48
SO 6 Explain how to account for the disposal of a plant asset.
49. Section 2 – Natural Resources
Section 2 – Natural Resources
Natural resources consist of standing timber and
resources extracted from the ground, such as oil, gas,
and minerals.
Standing timber is considered a biological asset under
IFRS.
In the years before they are harvested, the recorded
value of biological assets is adjusted to fair value each
period.
Slide
9-49
SO 7 Compute periodic depletion of extractable natural resources.
50. Section 2 – Natural Resources
Section 2 – Natural Resources
IFRS defines extractive industries as those businesses
involved in finding and removing natural resources located in
or near the earth’s crust.
Cost - price needed to acquire the resource and prepare it for
its intended use.
Depletion - allocation of the cost to expense in a rational and
systematic manner over the resource’s useful life.
Depletion is to natural resources as depreciation is to plant
assets.
Companies generally use units-of-activity method.
Depletion generally is a function of the units extracted.
Slide
9-50
SO 7 Compute periodic depletion of extractable natural resources.
51. Section 2 – Natural Resources
Section 2 – Natural Resources
Illustration: Assume that Lane Coal Company invests $5
million in a mine estimated to have 10 million tons of coal and no
salvage value. In the first year, Lane extracts and sells 800,000
tons of coal. Lane computes the depletion expense as follows:
$5,000,000 ÷ 10,000,000 = $.50 depletion cost per ton
$.50 x 800,000 = $400,000 depletion expense
Journal entry:
Depletion expense 400,000
Accumulated depletion 400,000
Slide
9-51
SO 7 Compute periodic depletion of extractable natural resources.
52. Financial Statement Presentation
Financial Statement Presentation
Illustration 9-23
Statement presentation of accumulated depletion
Extracted resources that have not been sold are reported as
inventory in the current assets section.
Slide
9-52
SO 7 Compute periodic depletion of extractable natural resources.
53. Section 3 – Intangible Assets
Section 3 – Intangible Assets
Intangible assets are rights, privileges, and competitive
advantages that do not possess physical substance.
Intangible assets are categorized as having either a
limited life or an indefinite life.
Common types of intangibles:
Patents Trademarks and trade
Copyrights names
Franchises or licenses Goodwill
IFRS permits revaluation of intangible assets to fair value, except for goodwill.
Slide
9-53
SO 8 Explain the basic issues related to accounting for intangible assets.
54. Types of Intangible Assets
Types of Intangible Assets
Patents
Exclusive right to manufacture, sell, or otherwise control
an invention for a specified number of years from the
date of the grant.
Legal life in many countries is 20 years.
Capitalize costs of purchasing a patent and amortize
over its legal life or its useful life, whichever is shorter.
Legal fees incurred successfully defending a patent are
capitalized to Patent account.
Slide
9-54
SO 8 Explain the basic issues related to accounting for intangible assets.
55. Accounting for Intangible Assets
Accounting for Intangible Assets
Intangible assets are typically amortized on a straight-line
basis.
Illustration: Assume that National Labs purchases a patent at
a cost of $60,000. National estimates the useful life of the
patent to be eight years. National records the annual
amortization as follows.
Amortization expense 7,500
Patent 7,500
Slide
9-55
SO 8 Explain the basic issues related to accounting for intangible assets.
56. Accounting for Intangible Assets
Accounting for Intangible Assets
Copyrights
Give the owner the exclusive right to reproduce and sell
an artistic or published work.
plays, literary works, musical works, pictures,
photographs, and video and audiovisual material.
Granted for the life of the creator plus a specified number
of years, which can vary by country but is commonly 70
years.
Capitalize costs of acquiring and defending it.
Amortized to expense over useful life.
Slide
9-56
SO 8 Explain the basic issues related to accounting for intangible assets.
57. Accounting for Intangible Assets
Accounting for Intangible Assets
Trademarks and Trade Names
Word, phrase, jingle, or symbol that identifies a particular
enterprise or product.
Wheaties, Game Boy, Frappuccino, Kleenex,
Windows, Coca-Cola, and Jetta.
Registration provides a specified number of years of
protection, which can vary by country, but is commonly 20
years.
Capitalize acquisition costs.
Renewed indefinitely, no amortization.
Slide
9-57
SO 8 Explain the basic issues related to accounting for intangible assets.
58. Accounting for Intangible Assets
Accounting for Intangible Assets
Franchises and Licenses
Contractual arrangement between a franchisor and a
franchisee.
BP (GBR), Taco Bell (USA), or Rent-A-Wreck (USA)
are franchises.
Franchise (or license) with a limited life should be
amortized to expense over the life of the franchise.
Franchise with an indefinite life should be carried at cost
and not amortized.
Slide
9-58
SO 8 Explain the basic issues related to accounting for intangible assets.
59. Accounting for Intangible Assets
Accounting for Intangible Assets
Goodwill
Includes exceptional management, desirable location, good
customer relations, skilled employees, high-quality products,
etc.
Only recorded when an entire business is purchased.
Goodwill is recorded as the excess of ...
purchase price over the fair value of the identifiable net
assets acquired.
Internally created goodwill should not be capitalized.
Slide
9-59
SO 8 Explain the basic issues related to accounting for intangible assets.
61. Research and Development Costs
Research and Development Costs
Frequently results in something that a company patents
or copyrights such as:
new product, formula,
process, composition, or
idea, literary work.
Costs in the research phase are always expensed as
incurred.
Costs in the development phase are expensed until
specific criteria are met, primarily that technological
feasibility is achieved.
Slide
9-61
SO 8 Explain the basic issues related to accounting for intangible assets.
62. Statement Presentation and Analysis
Statement Presentation and Analysis
Presentation Illustration 9-24
Slide SO 9 Indicate how plant assets, natural resources,
9-62 and intangible assets are reported.
63. Statement Presentation and Analysis
Statement Presentation and Analysis
Analysis
Illustration 9-25
Each dollar invested in assets produced in sales. If a
company is using its assets efficiently, each investment in
assets will create a high amount of sales.
Slide SO 9 Indicate how plant assets, natural resources,
9-63 and intangible assets are reported.
64. Understanding U.S. GAAP
Understanding U.S. GAAP
Key Differences Plant Assets, Natural
Resources, and Intangible
Assets
As in IFRS, under GAAP, the costs associated with research
and development are segregated into the two components.
Costs in the research phase are always expensed under
both IFRS and GAAP. Under GAAP, however, costs in the
development phase are also always expensed. As shown in
this chapter, under IFRS, development costs can be
capitalized once technological feasibility is achieved.
IFRS permits revaluation of intangible assets (except for
goodwill). GAAP prohibits revaluations of intangible assets.
GAAP does not require component depreciation.
Slide
9-64
65. Understanding U.S. GAAP
Understanding U.S. GAAP
Key Differences Plant Assets, Natural
Resources, and Intangible
Assets
GAAP does not permit the use of revaluation accounting for
property, plant, and equipment, which is allowed under
IFRS.
Under both GAAP and IFRS, changes in the depreciation
method used and changes in useful life are handled in
current and future periods. Prior periods are not affected.
GAAP recently conformed to IFRS in the accounting for
changes in depreciation methods.
Slide
9-65
66. Understanding U.S. GAAP
Understanding U.S. GAAP
Key Differences Plant Assets, Natural
Resources, and Intangible
Assets
IFRS allows reversal of impairment losses when there has
been a change in economic conditions or in the expected
use of the asset. Under GAAP, impairment losses cannot be
reversed for assets to be held and used; the impairment
loss results in a new cost basis for the asset. IFRS and
GAAP are similar in the accounting for impairments of
assets held for disposal.
The accounting for exchanges of non-monetary assets has
recently converged between IFRS and GAAP.
Slide
9-66
67. Understanding U.S. GAAP
Understanding U.S. GAAP
Plant Assets, Natural Resources,
Looking to the Future and Intangible Assets
It is too early to say whether a converged conceptual framework
will recommend fair value measurement (and revaluation
accounting) for plant assets and intangibles. However, this is likely
to be one of the more contentious issues, given the long-standing
use of historical cost as a measurement basis in GAAP. The IASB
and FASB have identified a project that would consider expanded
recognition of internally generated intangible assets. IFRS permits
more recognition of intangibles compared to GAAP. Thus, it will be
challenging to develop converged standards for intangible assets,
given the long-standing prohibition on capitalizing internally
generated intangible assets and research and development in
GAAP.
Slide
9-67
68. Exchange of Plant Assets
Exchange of Plant Assets Appendix
Ordinarily, companies record a gain or loss on the
exchange of plant assets.
The rationale for recognizing a gain or loss is that
most exchanges have commercial substance.
An exchange has commercial substance if the
future cash flows change as a result of the
exchange.
Slide
9-68
SO 10 Explain how to account for the exchange of plant assets.
69. Exchange of Plant Assets
Exchange of Plant Assets
Illustration: Roland Co. exchanged old trucks (cost $64,000
less $22,000 accumulated depreciation) plus cash of $17,000
for a new semi-truck. The old trucks had a fair value of $26,000.
Cost of old trucks $64,000
Loss Less: Accumulated depreciation 22,000
Book value 42,000
Treatment
Fair value of old trucks 26,000
Loss on disposal $16,000
Fair value of old trucks $26,000
Cash paid 17,000
Cost of new semi-truck $43,000
Slide
9-69
SO 10 Explain how to account for the exchange of plant assets.
70. Exchange of Plant Assets
Exchange of Plant Assets
Illustration: Roland Co. exchanged old trucks (cost $64,000
less $22,000 accumulated depreciation) plus cash of $17,000
for a new semi-truck. The old trucks had a fair market value of
$26,000.
Prepare the entry to record the exchange of assets by Roland
Co.
Semi-truck 43,000
Accumulated depreciation 22,000
Loss on disposal 16,000
Used trucks 64,000
Cash 17,000
Slide
9-70
SO 10 Explain how to account for the exchange of plant assets.
71. Exchange of Plant Assets
Exchange of Plant Assets
Illustration: Mark Express Delivery trades its old delivery
equipment (cost $40,000 less $28,000 accumulated
depreciation) for new delivery equipment. The old equipment
had a fair value of $19,000. Mark also paid $3,000.
Cost of old equipment $40,000
Gain Less: Accumulated depreciation 28,000
Book value 12,000
Treatment
Fair value of old equipment 19,000
Gain on disposal $ 7,000
Fair value of old equipment $19,000
Cash paid 3,000
Cost of new equipment $22,000
Slide
9-71
SO 10 Explain how to account for the exchange of plant assets.
72. Exchange of Plant Assets
Exchange of Plant Assets
Illustration: Mark Express Delivery trades its old delivery
equipment (cost $40,000 less $28,000 accumulated
depreciation) for new delivery equipment. The old equipment
had a fair value of $19,000. Mark also paid $3,000.
Prepare the entry to record the exchange of assets by Mark
Express.
Delivery equipment (new) 22,000
Accumulated depreciation 28,000
Delivery equipment (used) 40,000
Gain on disposal 7,000
Cash 3,000
Slide
9-72
SO 10 Explain how to account for the exchange of plant assets.
73. Exchange of Plant Assets
Exchange of Plant Assets
Review Question
In exchanges of assets in which the exchange has
commercial substance:
a. neither gains nor losses are recognized immediately.
b. gains, but not losses, are recognized immediately.
c. losses, but not gains, are recognized immediately.
d. both gains and losses are recognized immediately.
Slide
9-73
SO 10 Explain how to account for the exchange of plant assets.
p. 391 Many Firms Use Leases Q: Why might airline managers choose to lease rather than purchase their planes? A: The reasons for leasing include favorable tax treatment, better financing options, increased flexibility, reduced risk of obsolescence, and low airline income.
p. 408 ESPN Wins Monday Night Football Franchise Q: How should ESPN account for the $1.1 billion per year franchise fee? A: Since this is an annual franchise fee, ESPN should expense it each year, rather than capitalizing and amortizing it.