Copyright © 2007 Prentice-Hall. All rights reserved 1 Long-Term Assets: Plant Assets and Intangibles Chapter 9 Part 3.

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Copyright © 2007 Prentice-Hall. All rights reserved 1 Long-Term Assets: Plant Assets and Intangibles Chapter 9 Part 3

Copyright © 2007 Prentice-Hall. All rights reserved 2 Objective 5 Calculate and record depletion of natural resources

Copyright © 2007 Prentice-Hall. All rights reserved 3 Natural Resources Plant assets extracted from the natural environment Expensed through depletion using the units of production method Reported on balance sheet at cost less accumulated depletion

Copyright © 2007 Prentice-Hall. All rights reserved 4 DepletionDepletion Compute depletion rate per unit: Compute depletion expense: Estimated total units of natural resource Cost – Residual Value Depletion rate per unit Number of units extracted this period ×

Copyright © 2007 Prentice-Hall. All rights reserved 5 E9-24E9-24 Mine:$398,500 Filing fee500 License1,000 Survey60,000 Total cost$460,000 Divided by200,000 tons = $2.30 per ton Depletion: 40,000 $2.30/ton = $92,000

Copyright © 2007 Prentice-Hall. All rights reserved 6 E9-24E9-24 GENERAL JOURNAL DATEDESCRIPTIONREFDEBITCREDIT a)Mineral Asset398,500 Cash398,500 b)Mineral Asset1,500 Cash1,500 To record filing and license fees

Copyright © 2007 Prentice-Hall. All rights reserved 7 E9-24E9-24 GENERAL JOURNAL DATEDESCRIPTIONREFDEBITCREDIT b)Mineral Asset60,000 Cash60,000 Paid for geological survey c)Depletion Expense, Mineral Asset92,000 Accumulated Depletion, Mineral Asset92,000

Copyright © 2007 Prentice-Hall. All rights reserved 8 Objective 6 Account for intangible assets

Copyright © 2007 Prentice-Hall. All rights reserved 9 Intangible Assets Noncurrent assets with no physical form Provide exclusive rights or privileges Acquired to help generate revenues Expensed through amortization using the straight-line method over the asset’s useful life Written off the asset directly

Copyright © 2007 Prentice-Hall. All rights reserved 10 PatentsPatents Exclusive 20-year right to produce and sell an invention Granted by federal government

Copyright © 2007 Prentice-Hall. All rights reserved 11 CopyrightsCopyrights Exclusive right to reproduce and sell artistic works or intellectual property Issued by federal government Legal life – 70 years beyond life of the creator

Copyright © 2007 Prentice-Hall. All rights reserved 12 Represent distinctive identifications of a product or service Trademarks, Brand Names

Copyright © 2007 Prentice-Hall. All rights reserved 13 Franchises, Licenses Franchises - privileges granted by private business or government to sell goods or services Acquisition cost is capitalized and amortized

Copyright © 2007 Prentice-Hall. All rights reserved 14 E9-25E9-25 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT a)Patent1,000,000 Cash1,000,000 b)Amortization Expense, Patent125,000 Patent125,000 ($1,000,000 / 8 years)

Copyright © 2007 Prentice-Hall. All rights reserved 15 E9-25E9-25 GENERAL JOURNAL DATEDESCRIPTIONREFDEBITCREDIT Yr 5Amortization Expense, Patent250,000 Patent250,000 ($500,000 / 2 years) Cost$1,000,000 Less amortization for 4 years (125,000 x 4)500,000 Carrying value of patent$500,000

Copyright © 2007 Prentice-Hall. All rights reserved 16 GoodwillGoodwill Excess of purchase price of a company over market value of net assets acquired Only recorded in the purchase of another company Not amortized Measure value of each year –If value has increased – record nothing –If value has decreased – recognize loss and decrease carrying value

Copyright © 2007 Prentice-Hall. All rights reserved 17 E9-26E9-26 Goodwill Purchase price$11,000,000 Market value of net assets: Assets$15,000,000 Liabilities(10,000,000)5,000,000 Cost of goodwill purchased$6,000,000

Copyright © 2007 Prentice-Hall. All rights reserved 18 E9-26E9-26 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT (in millions) Other Assets15 Goodwill6 Liabilities10 Cash11

Copyright © 2007 Prentice-Hall. All rights reserved 19 Objective 7 Report long-term assets on the balance sheet

Copyright © 2007 Prentice-Hall. All rights reserved 20 Balance Sheet Presentation Total Current Assets$880,000 Property, Plant, and Equipment Land 120,000 Buildings$800,000 Equipment 160, ,000 Less: Accumulated Depreciation, Buildings and Equipment (410,000)550,000 Oil$380,000 Less: Accumulated Depletion, Oil (80,000) 300,000 Property, Plant, and Equipment, net 970,000 Goodwill 350,000

Copyright © 2007 Prentice-Hall. All rights reserved 21 End of Chapter 9

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