1 / 40

Long-term Assets

Long-term Assets. Types of Long-Term Assets. Property, plant, and equipment Long-term assets acquired for use in operations Natural resources Long-term assets with a value that decreases through use or sale. Types of Long-Term Assets. Intangible assets

valentinab
Télécharger la présentation

Long-term Assets

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Long-term Assets www.AssignmentPoint.com

  2. Types of Long-Term Assets • Property, plant, and equipment • Long-term assets acquired for use in operations • Natural resources • Long-term assets with a value that decreases through use or sale www.AssignmentPoint.com

  3. Types of Long-Term Assets • Intangible assets • Long-term assets that do not have physical substance www.AssignmentPoint.com

  4. Plant Asset Cost Purchase price (less cash discount) www.AssignmentPoint.com

  5. Plant Asset Cost Purchase price (less cash discount) plus all other reasonable and necessary expenditures www.AssignmentPoint.com

  6. Plant Asset Cost Purchase price (less cash discount) plus all other reasonable and necessary expenditures to prepare the asset for use www.AssignmentPoint.com

  7. Examples of Items Included • Purchase price less any cash discount • Shipping costs • Installation costs • Cost of modifications • Interest cost during construction www.AssignmentPoint.com

  8. Depreciation • Allocation of the cost of an asset to the periods the asset benefits • Not a valuation process www.AssignmentPoint.com

  9. Factors in Estimating Depreciation • Initial cost • Estimated residual value • Estimated Useful Life www.AssignmentPoint.com

  10. Depreciation Methods • Straight-line • allocate an equal amount to each period • Production unit • depreciation based on volume of output www.AssignmentPoint.com

  11. Accelerated Depreciation Methods • Double Declining-balance • apply a uniform rate to a declining amount (book value) • Sum-of-the-Years’-Digits • annual amount the decreases by a constant amount www.AssignmentPoint.com

  12. Example Data • Depreciable Asset - Truck • Invoice price $20,000 • Cash discount 2% • Modifications $3,400 • Estimated residual value $2,000 • Useful life - 4 years or 200,000 miles • Acquisition date - January 8, 19X1 www.AssignmentPoint.com

  13. Cost of Truck • Invoice price $20,000 • Less: Cash discount 400 • subtotal $19,600 • Modification 3,400 • Cost $23,000 www.AssignmentPoint.com

  14. Straight-Line Method Cost - Est. Residual Value Depreciation Expense = Est. Useful Life www.AssignmentPoint.com

  15. Straight-Line Method Expense Accum 19X1: ($23,000 - $2,000) / 4 $5,250 $5,250 19X2: ($23,000 - $2,000) / 4 $5,250 $10,500 19X3: ($23,000 - $2,000) / 4 $5,250 $15,750 19X4: ($23,000 - $2,000) / 4 $5,250 $21,000 www.AssignmentPoint.com

  16. Production Units Method Depreciation Expense per Unit Cost - Est. Residual Value = Est. Useful Life in Units Depreciation Expense per Unit Units Produced Depreciation Expense X = www.AssignmentPoint.com

  17. Production Units Method Exp Accum ($23,000 - $2,000) / 200,000 = $0.105 per mile 19X1: 50,000 miles X $0.105 $5,250 $5,250 19X2: 40,000 miles x $0.105 $4,200 $9,450 19X3: 60,000 miles x $0.105 $6,300 $15,750 19X4: 10,000 miles x $0.105 $1,050 $16,800 19X5: 20,000 miles x $0.105 $2,100 $18,900 19X6: 20,000 miles x $0.105 $2,100 $21,000 www.AssignmentPoint.com

  18. Double-Declining Balance • Calculate a straight-line rate • 1 divided by estimated useful life • Multiply straight-line rate by 2 • Multiply previous asset book value by doubled rate www.AssignmentPoint.com

  19. Double-Declining Balance Exp Accum 19X1: ($23,000 - $0) x (2)(1/4) $11,500 $11,500 19X2: ($23,000 - $11,500) x .5 $5,750 $17,250 19X3: ($23,000 - $17,250) x .5 $2,875 $20,125 19X4: ($23,000 - $20,125) x .5 $1,438 $21,623 overdepreciated www.AssignmentPoint.com

  20. Double-Declining Balance Exp Accum 19X1: ($23,000 - $0) x (2)(1/4) $11,500 $11,500 19X2: ($23,000 - $11,500) x .5 $5,750 $17,250 19X3: ($23,000 - $17,250) x .5 $2,875 $20,125 19X4: ($23,000 - $20,125) x .5 $1,438 $21,623 overdepreciated 19X4: ($23,000 - $2,000) - $20,125 $875 $21,000 www.AssignmentPoint.com

  21. Double-Declining Balance Exp Accum 19X1: ($23,000 - $0) x (2)(1/4) $11,500 $11,500 19X2: ($23,000 - $11,500) x .5 $5,750 $17,250 19X3: ($23,000 - $17,250) x .5 $2,875 $20,125 19X4: ($23,000 - $2,000) - $20,125 $875 $21,000 www.AssignmentPoint.com

  22. Sum-of-the-Years’-Digits Individual Year (reverse order) (Cost - Est. Residual Value) x Sum of Years’ Digits www.AssignmentPoint.com

  23. Calculating sum of years’ digits Add the numeric digits in useful life Example 1 + 2 + 3 + 4 = 10 Sum-of-the-Years’-Digits www.AssignmentPoint.com

  24. Sum-of-the-Years’-Digits Exp Accum 19X1: ($23,000 - $2,000) x 4/10 $8,400 $ 8,400 19X2: ($23,000 - $2,000) x 3/10 $6,300 $14,700 19X3: ($23,000 - $2,000) x 2/10 $4,200 $18,900 19X4: ($23,000 - $2,000) x 1/10 $2,100 $21,000 www.AssignmentPoint.com

  25. Pattern of depreciation expense • Straight-line • Amount is constant and equal • Production • Amount varies depending on usage www.AssignmentPoint.com

  26. Pattern of depreciation expense • Double declining • Amount is decreasing by decreasing amounts • Sum-of-the-Year’s-Digits • Amount is decreasing by constant amount www.AssignmentPoint.com

  27. Comparison of Depreciation Straight-line Production

  28. Comparison of Depreciation Double-declining balance Sum-of-the-Years’ Digits

  29. Modified Accelerated Cost Recovery System - MACRS • Income tax reporting method • Applies to tangible property placed in service after 1986 • Eight cost recovery classes with rates for each year • Tax deduction equals cost times appropriate rate for each year www.AssignmentPoint.com

  30. Revenue and Capital Expenditures • Revenue expenditure • Benefits only the current accounting period • Capital expenditure • Significant costs that benefit two more accounting periods www.AssignmentPoint.com

  31. Capital Expenditures • Additions • Enhance usefulness by enlarging asset • Debited to asset • Betterments • Increase or improve services • Debited to asset www.AssignmentPoint.com

  32. Capital Expenditures • Extraordinary repairs • Significant expenditures that extend useful life or change residual value • Debited to accumulated depreciation • In all capital expenditures • Depreciate increased book value over remaining useful life www.AssignmentPoint.com

  33. Disposal of Plant Assets • Sale • Retirement • Exchange www.AssignmentPoint.com

  34. Accounting for Disposal • Remove asset cost and related accumulated depreciation from the records • Book value is cost - accum deprec • Determine gain or loss on disposal • Gain • Received more than book value • Loss • Received less than book value www.AssignmentPoint.com

  35. Sales or Retirements • Always recognize any gain or loss www.AssignmentPoint.com

  36. Exchanges • Always recognize loss • Recognize gain only if exchange of dissimilar assets • If gain on exchange of similar assets • Reduce cost of new asset by gain www.AssignmentPoint.com

  37. Natural Resources • Mineral deposits, oil reserves, timber tracts • Consumption has a cost • Recognize depletion by production method www.AssignmentPoint.com

  38. Intangible Assets • Long-term rights that have future value • Patents, R&D, Goodwill • Consumption has a cost • Recognize amortization by straight-line method www.AssignmentPoint.com

  39. Analyzing Information • Are methods, asset lives, and residual values used reasonable? • If methods, lives, or residual values are changed during year, what is impact on net income? • If some interest cost was capitalized, what is total interest cost for period? • How would this change ratio “Times Interest Earned”? www.AssignmentPoint.com

  40. Times Interest Earned • Net income + Income Tax Expense + Total Interest Cost • divided by • Total Interest Cost www.AssignmentPoint.com

More Related