1. Operational Assets: Acquisition and Disposition
Sid Glandon, DBA, CPA
Assistant Professor of Accounting

2. Types of Operational Assets
Property, plant and equipment
Land, buildings, machinery, equipment
Trucks and autos
Natural resources
Intangible assets
Patents, copyrights, trademarks, franchises
Goodwill

3. Acquisition of Land Cost of land Improvements with limited life
Purchase price
Removal of old buildings
Preparing land for use
Special assessments
Improvements with limited life
Land improvements

4. Acquisition of Buildings
All costs of acquisition
Materials, labor and overhead costs
Professional fees and building permits

5. Acquisition of Equipment
Costs include
Purchase price
Delivery costs
Set up and installation

6. Natural Resources Valuation Acquisition costs Exploration costs
Development costs
Restoration costs

7. Asset Retirement Obligations
Recognized as a liability
Measured at fair value
Present value of estimated future cash outflows
Increases the carrying value of the asset
The liability increases each year for interest

8. Intangible Assets Purchased-recorded at purchase cost
Finite useful life assets are amortized
Indefinite useful life assets are tested for impairment
Internally developed intangibles
Not recorded on the books
Costs are expensed as incurred

9. Purchased Intangible Assets
Patents
20 years
Copyrights
Life of creator plus 70 years
Trademarks
Indefinite renewals for 10-year periods
Franchises
Contractual agreement

10. Goodwill Purchase cost only Not separable from the going concern
Indefinite life
Not subject to amortization
Subject to annual impairment testing

11. Example: Fact Pattern

12. Net Assets

13. Journal Entry

14. Valuation Lump sum purchase Noncash acquisitions
Deferred payment contracts
Issuance of debt or equity
Donated assets

15. Example: Lump Sum Purchase

16. Allocation of Purchase Price

17. Journal Entry to Record Purchase

18. Dispositions of Plant Assets
Sale of plant assets
Record depreciation to date of sale
Record gain or loss on sale
Involuntary Conversion
Gains or losses are reported as an extraordinary item

19. Exchanges Fair value can be determined
Fair value is established as either
The fair value of the asset given up, or
The fair value of asset acquired
New asset is recorded at fair value
Gains and losses are recognized
Fair value can not be determined
Asset received is valued at the book value of asset given up plus cash paid or minus cash received

20. Example: Fair Value Determined
Spencer Company traded a GMC van for a Ford panel truck. This is considered an exchange of nonmonetary assets. The company had originally paid $65,000 for the GMC van and had taken depreciation up to the date of exchange of $20,000. The fair value of the Ford panel truck was $40,000. Spencer Company received $10,000 in cash in the exchange.

23. Example: Fair Value Unknown
Spencer Company traded specialized manufacturing equipment for a unique piece of machinery. This is considered an exchange of nonmonetary assets. The company had originally paid $85,000 for the specialized manufacturing equipment and had taken depreciation up to the date of exchange of $45,000. The company is unable to determine the fair value for either asset. Spencer Company paid $10,000 in cash in the exchange.

26. Self-Constructed Assets
Costs include
Materials
Direct labor
Allocated fixed overhead costs
Capitalized interest cost during construction

27. Amount of Interest to Capitalize
Weighted-average accumulated expenditures
Weighted-average interest rate
Avoidable interest
Actual interest cost
Capitalized interest

28. Example: Fact Pattern

29. Schedule of Construction Costs

30. Total Debt

31. Weighted-Average Accumulated Expenditures

32. Weighted-Average Interest Rate General Debt

33. Avoidable Interest

34. Actual Interest

35. Journal Entry

36. T-Account Analysis Construction in Process

37. Research and Development
Prior to commercial production
R & D costs are expensed
Start of commercial production
Not considered R & D
May be expensed, or
Included in cost of inventory