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transcript
7/23/2019 ACCT2020 Introduction to Accounting for Non-Business Majors Chapter 8
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Reporting and InterpretingReporting and Interpreting
Property, Plant and Equipment;Property, Plant and Equipment;
Natural Resources; andNatural Resources; andIntangiblesIntangibles
Chapter 8
McGra!"ill#Irin $ %&&' (he McGra!"ill Companies, Inc)
7/23/2019 ACCT2020 Introduction to Accounting for Non-Business Majors Chapter 8
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Slide 2McGra!"ill#Irin
Measuring and Recording *cquisitionCost
Acquisition cost includes the purchase price and allexpenditures needed to prepare the asset for its intended use.
Acquisition cost does not include
financing charges and cash discounts.
Acquisition cost includes the purchase price and allexpenditures needed to prepare the asset for its intended use.
Acquisition cost does not include
financing charges and cash discounts.
Buildings
• Purchase price
• Renovation and repair costs
• Legal and realty fees
• Title fees
Buildings
• Purchase price
• Renovation and repair costs
• Legal and realty fees
• Title fees
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Slide 3McGra!"ill#Irin
Measuring and Recording *cquisitionCost
Equipment• Purchase price
• nstallation costs
• !odification to "uildingnecessary to installequip#ent
• Transportation costs
Equipment• Purchase price
• nstallation costs
• !odification to "uildingnecessary to installequip#ent
• Transportation costs
Land• Purchase price
• Real estate co##issions
• Title insurance pre#iu#s
• $elinquent taxes
• Surveying fees
• Title search and transfer fees
Land• Purchase price
• Real estate co##issions
• Title insurance pre#iu#s
• $elinquent taxes
• Surveying fees
• Title search and transfer fees
Land is not depreciable.
Land is not depreciable.
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Slide %McGra!"ill#Irin
*cquisition by Construction
Asset cost includes:
Asset cost includes:
All materials and
labor traceable to
the construction.
A reasonable
amount of
overhead.
Interest on debt
incurred during
the construction.
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Slide &McGra!"ill#Irin
Repairs, Maintenance, and *dditions
Type of Capital or
Ependiture !evenue Identifying Characteristics
"rdinary !evenue #. $aintains normal operating condition
repairs and %. &oes not increase productivity
maintenance '. &oes not etend life beyond original
estimate
Etraordinary Capital #. $a(or overhauls or partial
repairs replacements
%. Etends life beyond original estimate
Additions Capital #. Increases productivity
%. $ay etend useful life
'. Improvements or epansions
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Slide 'McGra!"ill#Irin
&epreciation is a cost allocation process thatsystematically and rationally matches acquisition costs
of operational assets )ith periods benefited by their use.
&epreciation is a cost allocation process thatsystematically and rationally matches acquisition costsof operational assets )ith periods benefited by their use.
Cost
Allocation*+nused,
Balance -heet
*+sed,
Income -tatement
Epense
+epreciation Concepts
AcquisitionCost
$epreciation(xpense
nco#eState#ent
)alance
Sheet
Accu#ulated
$epreciation
$epreciation for the current year
Total of depreciation
to date on an asset
7/23/2019 ACCT2020 Introduction to Accounting for Non-Business Majors Chapter 8
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+epreciation Concepts
(he calculation o depreciation requiresthree amounts or each asset-
*cquisition cost)
Estimated useul lie) Estimated residual .alue)
(he calculation o depreciation requiresthree amounts or each asset-
*cquisition cost)
Estimated useul lie)
Estimated residual .alue)
Alternative depreciation
methods:/traight!line
0nits!o!production
*ccelerated Method- +eclining
Alternative depreciation
methods:/traight!line
0nits!o!production
*ccelerated Method- +eclining
7/23/2019 ACCT2020 Introduction to Accounting for Non-Business Majors Chapter 8
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Measuring *sset Impairment
#pair#ent is the loss of a significant portionof the utility of an asset through . . .
• ,asualty.
• -"solescence.
• Lac of de#and for the asset/s services.
!ecognie aloss )hen
an asset
suffers a
permanent
impairment.
$isposal of Property0 Plant and (quip#ent1oluntary disposals
•Sale• Tradein
• Retire#ent
nvoluntary disposals• 4ire
• Accident
$isposal of Property0 Plant and (quip#ent1oluntary disposals
• Sale• Tradein• Retire#ent
nvoluntary disposals• 4ire
• Accident
7/23/2019 ACCT2020 Introduction to Accounting for Non-Business Majors Chapter 8
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+isposal o Property, Plant, andEquipment
/ournalie disposal by:
0riting off accumulated
depreciation *debit,.
0riting off the
asset cost *credit,.
!ecording cash
received *debit,
or paid *credit,.
!ecording a
gain *credit,
or loss *debit,.
+pdate depreciation to the date of disposal.
7/23/2019 ACCT2020 Introduction to Accounting for Non-Business Majors Chapter 8
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*cquisition and +epletion o NaturalResources
Eamples: oil1 coal1 gold
Etracted from
the natural
environment.
A noncurrent
asset presented
at cost less
accumulated
depletion.
Total cost of
asset is the cost
of acquisition1
eploration1
and development.
Total cost is
allocated over
periods benefited
by means of
depletion.
&epletion is li2e units3of3production depreciation.
7/23/2019 ACCT2020 Introduction to Accounting for Non-Business Majors Chapter 8
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*cquisition and *morti1ation oIntangible *ssets
4oncurrent assets
)ithout physical
substance.
4oncurrent assets
)ithout physical
substance.
+seful life is
often difficult
to determine.
+seful life is
often difficult
to determine.
+sually acquired
for operational
use.
+sually acquired
for operational
use.
"ften provide
eclusive rights
or privileges.
"ften provide
eclusive rights
or privileges.Intangible
Assets
Record at current cash equivalent cost0 including
purchase price0 legal fees0 and filing fees.
7/23/2019 ACCT2020 Introduction to Accounting for Non-Business Majors Chapter 8
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"ccurs )hen onecompany buys
another company.
The amount by )hich the purchase price eceedsthe fair mar2et value of net assets acquired.
"nly purchasedgood)ill is an
intangible asset.
8ood9ill
*cquisition and *morti1ation oIntangible *ssets
5ood)ill is not amortied. Its value must be revie)edat least annually for possible impairment1 and the
boo2 value is reduced to fair value if impaired.
5ood)ill is not amortied. Its value must be revie)edat least annually for possible impairment1 and the
boo2 value is reduced to fair value if impaired.
7/23/2019 ACCT2020 Introduction to Accounting for Non-Business Majors Chapter 8
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Trademar2s • A sy#"ol0 design0 or
logo associated 9ith
a "usiness.
• An exclusive legal right
to use a na#e0 i#age
or slogan.
• Purchased trade#arsare recorded at cost.
Trademar2s • A sy#"ol0 design0 or
logo associated 9ith
a "usiness.
• An exclusive legal right
to use a na#e0 i#age
or slogan.
• Purchased trade#arsare recorded at cost.
*cquisition and *morti1ation oIntangible *ssets
Copyrights • The exclusive right to
pu"lish0 use0 and sell a
literary0 #usical0 or
artistic 9or.
• Legal life is life of
creator plus *7 years.
• A#orti:e cost over theperiod "enefited.
Copyrights • The exclusive right to
pu"lish0 use0 and sell a
literary0 #usical0 or
artistic 9or.
• Legal life is life of
creator plus *7 years.
• A#orti:e cost over theperiod "enefited.
7/23/2019 ACCT2020 Introduction to Accounting for Non-Business Majors Chapter 8
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*cquisition and *morti1ation oIntangible *ssets
6atents • (xclusive right granted "y the federal govern#ent to sell or
#anufacture an invention.
• ,ost is purchase price plus legal cost to defend.• A#orti:e cost over the shorter of useful life or 27 years.
• Research and develop#ent costs that #ight result in a patent
are nor#ally expensed as incurred.
6atents • (xclusive right granted "y the federal govern#ent to sell or
#anufacture an invention.
• ,ost is purchase price plus legal cost to defend.
• A#orti:e cost over the shorter of useful life or 27 years.
• Research and develop#ent costs that #ight result in a patent
are nor#ally expensed as incurred.
Technology
• A category of intangi"le assets that includes a co#pany/s
9e"site and any co#puter progra#s 9ritten "y its e#ployees.
Technology
• A category of intangi"le assets that includes a co#pany/s
9e"site and any co#puter progra#s 9ritten "y its e#ployees.
7/23/2019 ACCT2020 Introduction to Accounting for Non-Business Majors Chapter 8
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7ranchises • Legally protected right
purchased "y a
franchisee to sell
products or provideservices for a specified
period and purpose.
• Purchase price is an
intangi"le asset that isa#orti:ed.
7ranchises • Legally protected right
purchased "y a
franchisee to sell
products or provideservices for a specified
period and purpose.
• Purchase price is an
intangi"le asset that isa#orti:ed.
*cquisition and *morti1ation oIntangible *ssets
Licenses and "perating!ights
• Li#ited per#issions to
use a product or service
according to specificter#s and conditions.
• ;ou #ay "e using
co#puter soft9are that
is #ade availa"le to youthrough a ca#pus
licensing agree#ent.
Licenses and "perating!ights
• Li#ited per#issions to
use a product or service
according to specificter#s and conditions.
• ;ou #ay "e using
co#puter soft9are that
is #ade availa"le to youthrough a ca#pus
licensing agree#ent.
7/23/2019 ACCT2020 Introduction to Accounting for Non-Business Majors Chapter 8
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2ocus on Cash 2los
"perating Activity
*Indirect method,
Effect on
Cash 7lo)s
&epreciation and amortiation 85ain on sale 3Loss on sale 8Loss due to impairment 8
Investing Activities6urchases of long3lived assets 3-ales of long3lived assets 8
7/23/2019 ACCT2020 Introduction to Accounting for Non-Business Majors Chapter 8
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End o Chapter 8