Académique Documents
Professionnel Documents
Culture Documents
Accounting:1
Tools for Business DecisionMaking
Fifth Canadian Edition
Prepared By:
Debbie Musil
Kwantlen Polytechnic
University
CHAPTER
C H APT ER
2
Reporting and
1
Analyzing Long-Lived
Assets
Study Objectives
1.
2.
3.
4.
5.
6.
7.
CHAPTER
CHAPTER
CHAPTER
Types of Expenditures
1
Operating expenditures
Benefit only the current period
Immediately charged against revenue as an
expense
Capital expenditures
Capitalized as an asset
Benefit future periods
CHAPTER
Land
1
Cost of land includes
Purchase price
Closing costs such as title and legal fees
Additional costs to prepare land for its intended
use (less any proceeds from salvage)
CHAPTER
Land Improvements
1
The costs of structural additions made to
land (e.g. paving, fencing)
These decline in service potential over time
They are recorded separately from land
CHAPTER
Buildings
1
All expenditures related to the purchase or
construction of a building
When a building is purchased such costs
include:
Purchase price
Closing costs (legal fees, title, insurance)
Costs required to make building ready for its
intended use
CHAPTER
Buildings (Continued)
1
When a building is constructed, its cost
consists of:
Contract price
Architect's fees
Building permits
Excavation cost
Interest costs during construction
CHAPTER
Equipment
1
Costs include:
Purchase price
Freight charges and insurance during transit
paid by the purchaser
Assembling
Installing and testing
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11
CHAPTER
Discussion Question
1
What are some of the expenditures that would
be included in the cost of a specialized piece of
equipment that a company ordered and had
delivered from another country?
12
CHAPTER
Buy or Lease?
1
Advantages of leasing
Reduced risk of obsolescence
100% financing
Income tax
Terminology
Lessor owner of asset for lease (e.g.,
landlord)
Lessee company leasing asset from owner
(e.g., tenant)
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CHAPTER
Finance lease
Treated as purchase by lessee (dr. asset/cr.
liability)
Periodic payment (dr. liability and interest
expense/cr. cash)
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Depreciation
1
Systematic allocation of the cost of
property, plant and equipment over the
assets useful life
A process of cost allocation, not asset
valuation
Does not use or provide cash to replace
the asset
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16
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Depreciation Methods
1
Straight-line
Used by the majority of Canadian publiclytraded companies
Diminishing-balance
Units-of-production
17
CHAPTER
CHAPTER
Straight-Line Method
Illustration 9-3
Depreciation is constant for each year of the asset's
useful life
19
CHAPTER
Diminishing-Balance Method
1
Produces a decreasing annual depreciation
expense over an assets useful life
Depreciation is calculated based on the assets
carrying amount, which diminishes each year as
accumulated depreciation increases
CHAPTER
21
CHAPTER
Units-of-Production Method
1
Useful life is expressed in terms of total
units of production or activity expected
from the asset
Such as units produced or machine-hours
worked
22
CHAPTER
Units-of-Production Method
23
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Discussion Question
1
24
CHAPTER
Significant components
May be depreciated separately
Income tax
Impairments
When carrying amount of asset exceeds its
recoverable amount
CHAPTER
CHAPTER
1. Update depreciation
CHAPTER
28
xxx
xxx
xxx
xxx
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CHAPTER
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Copyrights
Protection for the life of the creator + 50 years
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CHAPTER
Franchises
Contractual agreement to sell products or
services
Licences
Operating rights
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CHAPTER
Goodwill
1
Asset representing future economic
benefits arising from the purchase of a
business
Excess of cost over fair market value of net
assets (assets less liabilities) acquired
Represents the extra value relating to a
business when it is purchased
Only identified with the business as a whole
CHAPTER
Presentation of Long-Lived
Assets
1
Statement of Financial Position
Reported as
Property, Plant and Equipment
Intangible Assets
Goodwill
CHAPTER
Presentation of Long-Lived
Assets
1
Income Statement
Depreciation expense, gains and losses on
disposal and impairment losses are included
in the operating section
36
CHAPTER
Return on Assets
1
Measures overall profitability
Profit
.
Return on Assets = Average Total
Assets
Higher is better
37
CHAPTER
Asset Turnover
1
Measures how efficiently a company uses
its assets
Asset Turnover =
Net Sales
Average Total
Assets
Higher is better
38
CHAPTER
Profit x Asset
Margin Turnover
39
Return on
Assets
CHAPTER
40
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