Financial Accounting - BUS. 020 - Spring 2015 Sessions 15-16 Tangible & Intangible Assets.

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Presentation transcript:

Financial Accounting - BUS Spring 2015 Sessions Tangible & Intangible Assets

Financial Accounting - BUS Spring 2015 Property, Plant & Equipment n Acquisition n Use n Disposal

Financial Accounting - BUS Spring 2015 Capital Expenditures n Costs with a future benefit n For example, a building

Financial Accounting - BUS Spring 2015 Operating Expenditures n Costs that are consumed n For example, building maintenance

Financial Accounting - BUS Spring 2015 Use n Depreciation n Additional expenditures n Betterment versus maintenance

Financial Accounting - BUS Spring 2015 Depreciation n Depreciation expense on the income statement n Accumulated depreciation, contra account on the balance sheet n Land = no depreciation n Estimate useful life n Select depreciation method n Straight-line (SL) n Sum of the years’ digits (SYD) n Double declining balance (DDB) n May change life and method n Book and tax depreciation alternatives

Financial Accounting - BUS Spring 2015 Major Depreciation Methods n Straight line n (Cost - SV) / life n SYD (Sum of years digits) n (Cost - SV) * R/((n(n+1) / 2) n Double declining balance n NBV * 2 / life

Financial Accounting - BUS Spring 2015 Betterment or Maintenance n Extend life n Improve quality n Increase output n Reduce cost

Financial Accounting - BUS Spring 2015 Book Value versus Market Value n NBV = Cost - Accumulated depreciation n MV = Current price on open market

Financial Accounting - BUS Spring 2015 Disposal n Proceeds (MV) - NBV = Gain on disposal n What would determine a loss?

Natural Resources n Record at cost n Use DEPLETION versus DEPRECIATION n Often calculated on the basis of use Financial Accounting - BUS Spring 2015

Intangible Assets n Includes: patents, copyrights, trademarks….and n Amortized over related legal lives n Goodwill n Tested annually for impairment n Research and development n Expensed as incurred with the exception of software developed for sale n Capitalized when “Technological Feasibility” is achieved Financial Accounting - BUS Spring 2015