Accounting Assets
Essay by review • January 13, 2011 • Study Guide • 5,385 Words (22 Pages) • 2,263 Views
Chapter 10: Long-Term Assets
L01 Types of Long-Term Assets and Issues Related to Accounting for them
* Long-Term Assets:
o Useful life > 1
o Used in operations
o Not for sale
* Carrying Value or Book Value (vs. basis)
* Asset Impairment
o Occurs when future cash flow (w/o discount) < carrying value
o Reduce carrying value to present value for future cash flows
* Tangible Assets - Depreciation (except Land)
* Natural Resources - Depletion
* Intangible Assets - Amortization (except goodwill)
* Acquisition of long term assets (investing activity)
o Payback period
o NPV calculation
* Financing long-term assets (financing activity)
o Matching the period of estimated useful life the period of payback
o NYS example with school districts
* Applying Matching Rule to Long-Term Assets
o Relevance vs. Reliability
1. Determine cost (original carrying value)
2. Allocate against revenue
3. Distinguish between repairs and betterments for accounting purposes
4. Treatment of disposal
L02 Acquisition Cost of P,P&E
* Capital expenditure vs. revenue expenditure
o "benefit future periods"
o "Support but not extend benefit period"
* Cost includes all costs necessary to
o Put asset in place & ready to use
o Management's judgment to policies apply
o Includes interest during period of construction
* Land & Land Improvement
o Driveways, fences, parking lots, lightning
* Buildings & leasehold improvement (treated as intangible in textbook)
o Over useful life
o Over lease term, if less
* Equipment
* Group purchases - appraisals
L03 Accounting for Depreciation
* Allocate cost over useful life
o Not the valuation issue
* Cost, Residual value, Depreciable cost, Estimated useful life
* (Set up depreciation schedule on excel)
* Methods of computation
o Strait line
o Production method
o Declining balance
 Double declining
 Sum of the year's assets
* Use of declining method
o Theory
o Tax implications
L04 Disposal of Depreciable Assets
* Bring depreciation up to date upon disposal - remember the matching principle
* Cost and accumulated depreciation are removed with difference (carrying value or book value) compared to proceeds, if any, or value of replacements, if traded
* Difference if gain or loss except for trades in gains for similar assets (reason)
o Note difference with tax law for losses on similar assets (like kind) - similar & dissimilar are not necessarily the same for financial and tax reporting
o Note that deferral of cost for tax purposes increases basis in asset above its fair value
o Note that deferral of gain for book purposes decreases causing value and, therefore, depreciation in future period
* Tax depreciation is not GAAP - concepts of materiality and conservatism
L05 Accounting for Natural Resources
* Depletion - similar to production method of depreciation
* Remember residual value
o Allocate cost of land among resource residual
* Cost depletion for books
o % depletion also available for tax (% of revenue)
* Watch depreciation of single use tangible asset related to dependable resources
Oil & Gas industry
* Cost of development & exploration
* Successful efforts method
o Treat as asset cost associated with successful drilling of a well - conservative
* Full costing method
o Treat as asset cost associated with field with some successful wells and other dry wells
L06 Accounting for Intangible Assets
* Purchase only - except for ... developed software which has become marketable with some assurance for revenue stream (can recover carrying value)
* Amortization over shorter of legal or estimated useful life
* Goodwill - impairment test - "lower of cost or market" concept
o Relevance vs. reliability
* Research of development costs - expense
L07 Special Depreciation Problems
* Depreciation
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