Analyzing Investment Activities Week 4 – Part 1 Lecture date: 08/10/2016 FINA321 – Fall 2016 Abdullah Al Shukaili

Topics covered Explain the concept of long-term assets The processes of estimating the depreciation rate How to read the Audit Notes in the financial statement

Long term asset Long-term assets (LTA) are resources that are used to generate operating revenues (or reduce operating costs) for more than one period Two types of LTA: tangible fixed assets : such as property, plant, and equipment intangible assets such as patents, trademarks, copyrights, and goodwill.

Tangible assets Property, plant, and equipment (or plant assets) are noncurrent tangible assets used in the manufacturing, merchandising, or service processes to generate revenues and cash flows for more than one period these assets have expected useful lives extending over more than one period

Depreciation Depreciation is the allocation of the costs of plant and equipment (land is not depreciated) over their useful lives. Rate of Depreciation depends on:- useful life: Assumptions regarding useful lives of assets are based on economic conditions, engineering studies, experience, and information about an asset’s physical and productive properties Allocation Method: method used to estimate the depreciation rate

Depreciation methods Straight-line: allocates the cost of an asset to its useful life on the basis of equal periodic charges Accelerated: allocate the cost of an asset to its useful life in a decreasing manner

Exercise Please look to any audited financial statements, founded for instance in the MSM website and identify the following from the Auditor Notes:- Accounting standards used or accounting policies Expected life of assets Depreciation allocation method Notes to intangible asset