Signal to Noise Improvements in Seismoelectric Data Acquisition
Chapter 7 LONG TERM ASSETS. PART A ACQUISITION & IMPROVEMENTS.
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Transcript of Chapter 7 LONG TERM ASSETS. PART A ACQUISITION & IMPROVEMENTS.
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Chapter 7LONG TERM ASSETS
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PART A
ACQUISITION & IMPROVEMENTS
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PROPERTY, PLANT, EQUIPMENT
(PPE)LandLand ImprovementBuildingEquipment
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LANDUse in Business – not for
investmentPurchase Price (Historical Cost)+ Closing Costs and any fees+ Commissions
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LAND IMPROVEMENTSParking LotsPaving,Flowers (permanent),Fences,LightingWill be depreciated
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BUILDINGSAdministrative officesRetail storesStorage WarehousesManufacturing FacilitiesCost includes the purchase price,
commissions, legal fees, anything that is required to get the building ready for use
If new construction: include interest on loan while building. Once revenue is produced—interest will be an expense
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EQUIPMENTMachineryComputers & office equipmentVehiclesFurniture and fixturesCost is the purchase price,
transportation, tax, testing, installation, legal fees—any costs to prepare the asset to use
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NATURAL RESOURCESCan be physically used up or
depletedOilNatural GasTimberCoal
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INTANGIBLE ASSETSIntangible –can’t be feltPatents,Copyrights,Trademarks,Franchise RightsGoodwill
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DefinitionsPatent – exclusive rights to manufacture a
product or process 20 yrs add legal feesCopyrights-- protection of published work
70 yrsTrademark – word, slogan or symbol
10 yrsFranchises – pay to use name and sell its
products. Cost is initial fee—rest is expensed
Goodwill – Value of a company over the value of its assets
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CLICKERSA. PPEB.
IntangibleC. Natural
Resource
1. Water2. Mac’s Golden Arches3. Sprinkler System4. Store5. Testing Machine6. Timber7. Rights to a story8. Use of Process9. Word or Slogan10. Rights to sell a
product
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Purchase vs creating IntangiblesPurchase – can tell the value of
the assetCreate – can’t tell the valuePurchase – like PPE – cost of
getting ready to useCreate – R&D – must expense—
can’t determine future benefit
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CAPITALIZE vs EXPENSECAPITALIZE – record as an asset -
depreciateEXPENSES – record on income
statement
We capitalize an expenditure as an asset if it increases future benefits, whereas we expense an expenditure if it benefits only the current period.
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Costing an Asset ExamplesLand BE 7-1 pg 332Equipment BE 7-2 pg 332Goodwill BE 7-3 pg 332
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Expenditures after AcquisitionRepairs and Maintenance (Minor)
– expenseRepairs and Maintenance (Major)
- capitalizeAddition – major addition –
capitalizeImprovements -- CapitalizeLegal Defense of Intangible Asset
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Examples of After AcquisitingBE 7-5 pg 332
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PART B
COSTALLOCATION
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TerminologyDepreciation – taking cost from balance
sheet to income statementAccumulated Depreciation (A.D) -
Accumulation of depreciation for life of asset (Contra Asset)
Book Value = Cost – A.D.Salvage Value = Value of asset at the
end of its lifeDepreciable Cost – Cost less Salvage
ValueLAND DOES NOT DEPRECIATE
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DEPRECIATION METHODSStraight-line(SL) –Conservative-
doesn’t affect Net Income◦Depreciable Cost/Life
Declining-Balance(DDB) – Aggressive – ◦Book Value X Depreciation Rate◦Book Value not Salvage Value
Activity Based (UOP) – Average◦Depreciable Cost / # of units
expectedTax Depreciation - MACRS
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Examples: BE 7-8 pg 332
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Journal EntryDepreciation Expense Accumulated Depreciation
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DEPRECIATION SCHEDULEStraight Line pg 313Declining Balance pg 314Activity Based pg 316Comparison pf 316
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AMORTIZATION Intangible Assets with a definite
lifeDepreciable Cost/ Life Like SL
Unlimited life do not amortize –like LAND
Amortization Expense Patent or Franchise
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Amortization Expense ExampleBE 7-9 pg 333
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PART C
ASSET DISPOSITION
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Asset Deposition
SaleRetirementExchange
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Sale of an AssetCashAccum DeprLoss (if Cash is less than BV) Asset Gain (if Cash is more than
BV)
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Example of Sale of AssetBE 7-10 pg 333
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Retirement Accumulated DeprLoss on Retirement Asset
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Exchange(Trade-In)New AssetAccum Depr (old) Cash or A/P Old Asset Gain (if more than BV)
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Both Sides of ExchangeBuyer BE 7-11 pg 333Seller BE 7-12 pg 333
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Asset Analysis
Return on Assets Net Income/ Avg Total AssetsProfit Margin Net Income/ Net SalesAsset TurnoverNet Sales/ Average Total Assets
Return on Assets = Profit Margin X Asset Turnover
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Asset AnalysisBE 7-13 pg 333
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Asset ImpairmentImpairment Loss = difference
between the asset’s book value and its fair value
Like Lower of Cost or Market
Impairment Loss Trademark
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Asset ImpairmentBE 7-14 and 7-15 pg 333