Accounting Assets

Essay text:

Reliability 1. Determine cost (original carrying value) 2. Allocate against revenue 3. Distinguish between repairs and betterments for accounting purposes 4. Treatment of disposal L02 Acquisition Cost of P,P&E ? Capital expenditure vs. revenue expenditure o "benefit future periods" o "Support but not extend benefit period" ? Cost includes all costs necessary to o Put asset in place & ready to use o Management's judgment to policies apply o Includes interest during period of construction ? Land & Land Improvement o Driveways, fences, parking lots, lightning ? Buildings & leasehold improvement (treated as intangible in textbook) o Over useful life o Over lease term, if less ? Equipment ? Group purchases ? appraisals L03 Accounting for Depreciation ? Allocate cost over useful life o Not the valuation issue ? Cost, Residual value, Depreciable cost, Estimated useful life ? (Set up depreciation schedule on excel) ? Methods of computation o Strait line o Production method o Declining balance ? Double declining ? Sum of the year's assets ? Use of declining method o Theory o Tax implications L04 Disposal of Depreciable Assets ? Bring depreciation up to date upon disposal ? remember the matching principle ? Cost and accumulated depreciation are removed with difference (carrying value or book value) compared to proceeds, if any, or value of replacements, if traded ? Difference if gain or loss except for trades in gains for similar assets (reason) o Note difference with tax law for losses on similar assets (like kind) ? similar & dissimilar are not necessarily the same for financial and tax reporting o Note that deferral of cost for tax purposes increases basis in asset above its fair value o Note that deferral of gain for book purposes decreases causing value and, therefore, depreciation in future period ? Tax depreciation is not GAAP ? concepts of materiality and conservatism L05 Accounting for Natural Resources ? Depletion ? similar to production method of depreciation ? Remember residual value o Allocate cost of land among resource residual ? Cost depletion for books o % depletion also available for tax (% of revenue) ? Watch depreciation of single use tangible asset related to dependable resources Oil & Gas industry ? Cost of development & exploration ? Successful efforts method o Treat as asset cost associated with successful drilling of a well ? conservative ? Full costing method o Treat as asset cost associated with field with some successful wells and other dry wells L06 Accounting for Intangible Assets ? Purchase only ? except for ? developed software which has become marketable with some assurance for revenue stream (can recover carrying value) ? Amortization over shorter of legal or estimated useful life ? Goodwill ? impairment test ? "lower of cost or market" concept o Relevance vs...