Kế toán, kiểm toán - Chapter six: Accounting for long - Term operational assets

Chapter SixAccounting for Long-Term Operational Assets© 2015 McGraw-Hill Education.Intangible AssetsIntangible Assets with Identifiable Useful Lives – These intangibles include patents and copyrights. We amortize the cost of each over its useful life.Intangible Assets with Indefinite Useful Lives - These intangibles include renewable franchises, trademarks, and goodwill. The cost of these assets is not expensed unless it can be shown that there has been an impairment in value. 6-2Cost of Long-Term AssetsBuildings –Purchase price,Sales taxes,Title search and transfer document costs,Realtor’s and attorney’s fees, andRemodeling costs.Equipment –Purchase price (less discounts),Sales taxes,Delivery costs,Installation costs, andCosts to adapt to intended use. 6-3Cost of Long-Term AssetsLand –Purchase price,Sales taxes,Title search and transfer document costs,Realtor’s and attorney’s fees, Costs of removal of old buildings, andGrading costs. 6-4Basket Purchase AllocationBeatty Company paid $240,000 for land and a building. An independent appraiser provided these fair value estimates: land $90,000, and building $270,000. The $240,000 cost paid is separately assigned based on % of total fair value. 6-5Basket Purchase AllocationThe land and building that Beatty Company are assigned their own allocation of the $240,000 paid based on the individual % of total fair value. The “Allocation” is the amount recorded in the accounting records. 6-6Life Cycle of Operational AssetsAcquireFundingBuyAssetUseAssetRetireAsset 6-7Depreciation MethodStraight-line method - the same amount of depreciation is taken each accounting period.Double-declining-balance – produces more depreciation expense in the early years of an asset’s life, with a declining amount of expense in later years.Units-of-Production – produces varying amounts of depreciation in different accounting periods depending upon the number of units produced. 6-8Revision of EstimatesEstimates are frequently revised when new information surfaces. Assume we purchased equipment on January 1, 2016, for $50,000 cash and estimated salvage value was $3,000. The equipment has an estimated useful life of eight years, and the company uses straight-line depreciation.($50,000 – $3,000) ÷ 8 = $5,875 depreciation per yearOn January 1, 2020, after four years of depreciation, it was determined that the machine has a remaining useful life of ten more years for a total estimated useful life of fourteen years. 6-9Revision of Life EstimatesYearAnnual DepreciationAccumulated DepreciationBook Value20165,875$ 5,875$ 44,125$ 20175,875 11,750 38,250 20185,875 17,625 32,375 20195,875 23,500 26,500 2020202120222023We determine the remaining annual depreciation like this:$26,500 – $3,000 = $23,500 ÷ 10 years = $2,350 per year for years 2020 through 2029YearAnnual DepreciationAccumulated DepreciationBook Value20165,875$ 5,875$ 44,125$ 20175,875 11,750 38,250 20185,875 17,625 32,375 20195,875 23,500 26,500 20202,350 25,850 24,150 6-10Revision of Salvage EstimatesWe determine the remaining annual depreciation like this:$26,500 – $6,000 = $20,500 ÷ 4 years = $5,125 per yearYearAnnual DepreciationAccumulated DepreciationBook Value20165,875$ 5,875$ 44,125$ 20175,875 11,750 38,250 20185,875 17,625 32,375 20195,875 23,500 26,500 202075,125 28,625 21,375 20215,125 33,750 16,250 20225,125 38,875 11,125 20235,125 44,000 6,000 YearAnnual DepreciationAccumulated DepreciationBook Value20165,875$ 5,875$ 44,125$ 20175,875 11,750 38,250 20185,875 17,625 32,375 20195,875 23,500 26,500 2020202120222023 6-11Continuing Expenditures for Plant AssetsCosts that Are ExpensedThe cost of routine maintenance and minor repairs that are incurred to keep an asset in good working order are expensed as incurred.Assume McGraw spent $500 cash for routine lubrication and minor parts on machinery. 6-12Continuing Expenditures for Plant AssetsCosts that Are CapitalizedExpenditures that improve the quality of an asset are capitalized as part of the cost of that asset.Assume McGraw spent $4,000 cash for a major overhaul of equipment to improve efficiency. 6-13Continuing Expenditures for Plant AssetsCosts that Extend the Life of an AssetThe amount of the expenditure should reduce the balance in the accumulated depreciation account.Assume McGraw spent $4,000 cash for improvements that extended the life of machine two years. 6-14Natural ResourcesCost – Salvage valueTotal estimated units recoverable=Depletion charge per unitof resourceDepletion charge per unitof resource×Number of units extracted and sold this period=PeriodicDepletion Expense 6-15Intangible AssetsTrademarksA name or symbol that identifies a company or a product. The cost of a trademark may include design, purchase, or defense of the trademark.PatentsThe exclusive legal right to produce and sell a product that has one or more unique features. The legal life of a patent is 20 years. 6-16Intangible AssetsCopyrightsProtection of writings, musical composition, work of art, or other intellectual property. The protection extends for the life of the creator plus 70 years.FranchiseThe exclusive right to sell products or perform services in certain geographic areas. 6-17GoodwillASSUME: Your company is willing to pay $350,000 ($300,000 cash and assumption of $50,000 liabilities) to acquire Seller Company. Assets280,000$ Liabilities50,000$ Stockholders' Equity230,000 Total280,000$ Seller CompanyBalance SheetAt December 31, 20XXGoodwillThe excess of cost over fair value of net tangible assets acquired in a business acquisition. 6-18Impairment of Intangible AssetIntangible assets with indefinite useful lives must be tested for impairment annually. If the fair value of the intangible asset is less than its book value, an impairment loss is recognized.Assume that the asset goodwill is determined to be impaired and a decline in value of $30,000, The effects on the financial statements would be: 6-19Balance Sheet Presentation 6-20End of Chapter Six 6-21