Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.
-
Upload
vivien-newton -
Category
Documents
-
view
237 -
download
0
Transcript of Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.
![Page 1: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/1.jpg)
Chapter 8
Operating Assets: Property, Plant, and Equipment, and Intangibles
![Page 2: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/2.jpg)
Operating Assets Two categories of operating assets presented on the
balance sheet: Property, Plant and Equipment Intangible Assets
Presented at their acquisition cost (historical cost) Essential to a company’s long-term future
Used to produce the goods or services the company sells to customers
Constitute the major productive assets of many companies
LO 1
![Page 3: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/3.jpg)
Balance Sheet Presentation of Property, Plant, and Equipment
Balance sheet uses one line item for property, plant, and equipment and presents the details in the notes
![Page 4: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/4.jpg)
Acquisition of Property, Plant, and Equipment
LO 2
Initially recorded at acquisition cost or original cost
Includes all cost normally necessary to acquire an asset and prepare it for its intended use Purchase price Taxes paid at time of purchase (for example, sales
tax) Transportation charges Installation costs
![Page 5: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/5.jpg)
Group Purchase
Firm purchases several assets as a group and pays a lump-sum amount
Acquisition cost of each asset is separately measured on the basis of the proportion of the fair market value of each
LO 3
![Page 6: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/6.jpg)
Example 8.1—Determining Cost When a Group of Assets Is Purchased
Assume that on January 1, ExerCo purchased a building and the land on which it is situated for $100,000. The accountant established the assets’ fair market value on January 1 as follows:
Based on the estimated market values, purchase price should be allocated as follows:
To land $100,000 × $30,000/$120,000 = $25,000
To building $100,000 × $90,000/$120,000 = $75,000
![Page 7: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/7.jpg)
Example 8.1—Determining Cost When a Group of Assets Is Purchased (continued)
The effect of the transaction can be identified and analyzed as follows:
![Page 8: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/8.jpg)
Capitalization of Interest
The interest on borrowed money should be treated as an expense of the period
If a company constructs an asset over a period of time and borrows money to finance the construction The interest incurred during the construction period
is not treated as interest expense The interest must be included as part of the
acquisition cost of the asset
LO 4
![Page 9: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/9.jpg)
Land Improvements
The acquisition cost of land should be kept in a separate account because land has an unlimited life and is not subject to depreciation
Costs associated with land should be recorded in an account such as Land Improvements Example: Costs of paving a parking lot and
landscaping costs• Have a limited life• Should be depreciated over their useful lives
![Page 10: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/10.jpg)
Use and Depreciation of Property,Plant, and Equipment
Depreciation: allocation of the original cost of an asset to the periods benefited by its use
An asset’s decline in usefulness is related to: Physical deterioration from usage or from the
passage of time Obsolescence factors such as changes in technology The company’s repair and maintenance policies
LO 5
![Page 11: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/11.jpg)
Use and Depreciation of Property,Plant, and Equipment
Methods of depreciation: Straight-line Units-of-production Accelerated depreciation
The method chosen should be one that best matches the expense to the revenue generated by the asset
![Page 12: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/12.jpg)
Straight-Line Method
Allocates the cost of the asset evenly over time
![Page 13: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/13.jpg)
Example 8.2—Computing Depreciation Using the Straight-Line Method
Assume that on January 1, 2014, ExerCo, a manufacturer of exercise equipment, purchased a machine for $20,000. The machine’s estimated life would be five years, and its residual value at the end of 2018 would be $2,000. The annual depreciation should be calculated as follows:
The book value at the end of 2014
![Page 14: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/14.jpg)
Example 8.2—Computing Depreciation Using the Straight-Line Method (continued) The book value at the end of 2014
![Page 15: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/15.jpg)
Units-of-Production Method
Depreciation is determined as a function of the number of units the asset produces
![Page 16: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/16.jpg)
Example 8.3—Computing DepreciationUsing the Units-of-Production
ExerCo has estimated that the total number of units that will be produced during the asset’s five-year life is 18,000. During 2014, ExerCo produced 4,000 units. The depreciation per unit for ExerCo’s machine can be calculated as follows:
The book value at the end of 2014
![Page 17: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/17.jpg)
Accelerated Depreciation Method
Higher amount of depreciation is recorded in the early years than in later years
Double-declining-balance method: recorded at twice the straight-line rate, but the balance is reduced each period
![Page 18: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/18.jpg)
Example 8.4—Computing DepreciationUsing the Double-Declining-Balance Method
Assume that ExerCo wants to depreciate its asset using the double-declining-balance method. The first step is to calculate the straight-line rate as a percentage. The straight-line rate for the ExerCo asset with a five-year life is as follows:
The second step is to double the straight-line rate, as follows:
The amount of depreciation for 2014
The amount of depreciation for 2015
![Page 19: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/19.jpg)
Example 8.4—Computing DepreciationUsing the Units-of-Production (continued)
The complete depreciation schedule for ExerCo for all five years of the machine’s life would be as follows:
![Page 20: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/20.jpg)
Exhibit 8.1—Comparison of Depreciation and Book Values of Straight-Line and Double-Declining-Balance Methods
![Page 21: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/21.jpg)
Exhibit 8.2—Management’s Choice of Depreciation Method
![Page 22: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/22.jpg)
Changes in Depreciation Estimate
Change in the life of the asset or in its residual value
Recorded prospectively The depreciation recorded in prior years is not
corrected or restated The new estimate should affect the current and
future years
LO 6
![Page 23: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/23.jpg)
Example 8.5—Calculating a Change in Depreciation Estimate
$20,000 machine originally expected to be depreciated over 5 years. After 2 years, useful life is increased to 7 years
Depreciation
$3,600
2012 2013 2014
reviseestimate
2015 2016
$3,600
From 5 years to 7 years
![Page 24: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/24.jpg)
Example 8.5—Calculating a Change in Depreciation Estimate (continued)
Depreciation
2012 2013 2014 2015
reviseestimate
$2,160 $2,160$3,600 $3,600 $2,160 $2,160 $2,160
2016 2017 2018
![Page 25: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/25.jpg)
Example 8.5—Calculating a Change in Depreciation Estimate (continued)
In Example 8-5, the effect of the transaction can be identified and analyzed as follows:
![Page 26: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/26.jpg)
Capital vs. Revenue Expenditures
LO 7
![Page 27: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/27.jpg)
Capital vs. Revenue Expenditures
![Page 28: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/28.jpg)
Example 8.6—Capitalizing Costsof a Major Repair
At the beginning of 2016, ExerCo made a $3,000 overhaul to the machine, extending its life by three years. Because the expenditure qualifies as a capital expenditure, the cost of overhauling the machine should be added to the asset account.
Beginning in 2016, the company should record depreciation of $2,300 per year, computed as follows:
![Page 29: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/29.jpg)
Example 8.6—Capitalizing Costsof a Major Repair (continued)
The effect of the transaction for the overhaul is as follows:
![Page 30: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/30.jpg)
Example 8.6—Capitalizing Costsof a Major Repair (continued)
The effect of the transaction to record depreciation for 2016 can be identified and analyzed as follows:
![Page 31: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/31.jpg)
Disposal of Property, Plant, and Equipment
Occurs when the asset is sold, traded, or discarded
Update depreciation to the date of disposal and calculate gain or loss A gain occurs when the selling price of the asset
exceeds its book value A loss occurs when the selling price of the asset is
less than its book value Gain or loss is reported in the Other Income or
Expense category of the income statement
LO 8
![Page 32: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/32.jpg)
Gain on Sale of an AssetOn January 1,2014, ExerCo purchased a machine 2014, for $20,000, estimating its life to be five years and the residual value to be $2,000. ExerCo used the straight-line method of depreciation. ExerCo sold the machine on July 1, 2016. Depreciation for the six-month period from January 1 to July 1, 2016, is $1,800 ($3,600 per year × 1/2 year = 1,800). The effect of the transaction for depreciation can be identified and analyzed as follows:
![Page 33: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/33.jpg)
Example 8.7—Calculating the Gain on Sale of an Asset
Assume that ExerCo purchased a machine on January 1, 2014, for $20,000, estimating its life to be five years and the residual value to be $2,000. ExerCo used the straight-line method of depreciation. ExerCo sold the machine on July 1, 2016,for $12,400. The gain can be calculated as follows:
![Page 34: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/34.jpg)
Example 8.7—Calculating the Gain on Sale of an Asset (continued)
After the July 1 entry, the balance of the Accumulated Depreciation—Machine account is $9,000, which reflects depreciation for the 2½ years from the date of purchase to the date of sale. The effect of the transaction for the sale can be identified and analyzed as follows:
![Page 35: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/35.jpg)
Example 8.8—Calculating the Loss on Sale of an Asset
Assume that ExerCo purchased a machine on January 1, 2014, for $20,000, estimating its life to be five years and the residual value to be $2,000. ExerCo used the straight-line method of depreciation. ExerCo sold the machine on July 1, 2016,for $10,000. The loss is calculated as follows:
![Page 36: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/36.jpg)
Example 8.8—Calculating the Loss on Sale of an asset (continued)
The effect of the transaction for the sale can be identified and analyzed as follows:
![Page 37: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/37.jpg)
IFRS and Property, Plant, and Equipment
IFRS requires estimates of residual value and the life of the asset be reviewed at least annually FASB standards does not require the annual review
The international standards also indicate that companies should determine the components of an asset and depreciate each component separately
International Standards allow companies to revalue the assets to reflect their fair market values FASB does not allow the revaluing to fair market value
![Page 38: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/38.jpg)
Operating Assets: Intangible Assets
Assets with no physical properties Long-term assets and should be shown
separately from property, plant, and equipment
LO 9
![Page 39: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/39.jpg)
Operating Assets: Intangible Assets
Most common intangible assets: Patent: right to use, manufacture, or sell a product Copyright: right to reproduce or sell a published
work Trademark: symbol or name that allows a product or
service to be identified Goodwill: excess purchase price to acquire a
business over the value of net assets acquired
![Page 40: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/40.jpg)
Acquisition Cost of Intangible Assets
Includes cost to acquire and prepare it for its intended use
Purchase Price +
Acquisition Cost (i.e., legal fees,
registration fees, etc.)
![Page 41: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/41.jpg)
Exhibit 8.4—The Nike, Inc., Consolidated Assets Section and Intangibles Notes
![Page 42: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/42.jpg)
Research and Development Costs
Costs incurred in the discovery of new knowledge
According to FASB, all such expenditures must be treated as expenses in the period incurred Patent account should not include the costs of
research and development of a new product
![Page 43: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/43.jpg)
Amortization of Intangibles
Intangibles with finite life must be amortized Recorded over the legal life or the useful life,
whichever is shorter Mostly recorded using the straight-line method
Intangibles with indefinite life are not amortized Example: trademark, goodwill, and broadcast
license
LO 10
![Page 44: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/44.jpg)
Example 8.9—Calculating the Amortization of Intangibles
Assume that Nike developed a patent for a new shoe product on January 1, 2014. The costs involved with patent approval were $10,000, and the company wants to record amortization on the straight-line basis over a five-year life with no residual value. In this case, the useful life of the patent is less than the legal life. Nike should record amortization over the useful life as $10,000/5 years = $2,000. The effect of the amortization for 2014 is as follows:
![Page 45: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/45.jpg)
Example 8.9—Calculating the Amortization of Intangibles
Some companies decrease (credit) the intangible asset account directly. In that case, the preceding transaction is recorded as follows:
![Page 46: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/46.jpg)
Intangibles with Indefinite Life
If an intangible asset has an indefinite life, amortization should not be recognized
![Page 47: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/47.jpg)
Goodwill and Impairments
As per the FASB, goodwill should be treated as an intangible asset with an indefinite life and that companies should not record amortization expense related to goodwill
Each year, Assets with indefinite life should be checked for impairment
If an impairment has occurred, a loss should be recognized
![Page 48: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/48.jpg)
Goodwill and Impairments Assume that Nike learns on January 1, 2015, when accumulated
amortization is $2,000 (or the book value of the patent is $8,000), that a competing company has developed a new product that renders Nike’s patent worthless. Nike has a loss of $8,000 and should record an entry to write off the asset as follows:
![Page 49: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/49.jpg)
IFRS and Intangible Assets
International standards are more flexible than the FASB standards in allowing the use of fair market values for intangible assets Active market must exist Fair value must be possible to determine
Research and development costs FASB: all such costs should be treated as an expense IFRS: Research costs be treated as an expense and
development costs can be capitalized as an asset
![Page 50: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/50.jpg)
Exhibit 8.5—Long-Term Assets and the Statement of Cash Flows
LO 11
![Page 51: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/51.jpg)
Analyzing Long-term Assets—Average Life
Ratios are used to determine the age, composition, and quality of the operating assets
What is the average depreciable period (or life) of the company’s assets?
Property, Plant, and EquipmentDepreciation Expense
Average Life =
LO 12
![Page 52: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/52.jpg)
Analyzing Long-term Assets—Average Age
Are assets old or new?
Accumulated DepreciationDepreciation Expense
Average Age =
![Page 53: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/53.jpg)
Analyzing Long-term Assets—Asset Turnover
How productive are the company’s assets?
Net SalesAverage Total Assets
Asset Turnover =
![Page 54: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/54.jpg)
The Ratio Analysis Model
1. What is the average life of the assets? What is the average age of the assets? How productive are the assets in producing revenue for the company?
2. Gather the information about net sales and cost of goods sold
3. Calculate the average life and average age4. Compare the ratio with prior years and with
competitors5. Interpret the ratios
![Page 55: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/55.jpg)
The Business Decision Model
1. If you were a lender, would you be willing to lend money to Nike, Inc., and use the operating assets as collateral for the loan?
2. Gather information from the financial statements and other sources
3. Compare the ratios with industry averages and look at trends
4. Lend money or find an alternative use for the money
5. Monitor the investment periodically
![Page 56: Chapter 8 Operating Assets: Property, Plant, and Equipment, and Intangibles.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e3a5503460f94b2c71f/html5/thumbnails/56.jpg)
End of Chapter 8