Essay About Long-Term Assets And Note Difference

Accounting Assets
Essay Preview: Accounting Assets
Report this essay
Chapter 10: Long-Term Assets
L01 Types of Long-Term Assets and Issues Related to Accounting for them
Long-Term Assets:
Useful life > 1
Used in operations
Not for sale
Carrying Value or Book Value (vs. basis)
Asset Impairment
Occurs when future cash flow (w/o discount) < carrying value Reduce carrying value to present value for future cash flows Tangible Assets - Depreciation (except Land) Natural Resources - Depletion Intangible Assets - Amortization (except goodwill) Acquisition of long term assets (investing activity) Payback period NPV calculation Financing long-term assets (financing activity) Matching the period of estimated useful life the period of payback NYS example with school districts Applying Matching Rule to Long-Term Assets Relevance vs. Reliability Determine cost (original carrying value) Allocate against revenue Distinguish between repairs and betterments for accounting purposes Treatment of disposal L02 Acquisition Cost of P,P&E Capital expenditure vs. revenue expenditure "benefit future periods" "Support but not extend benefit period" Cost includes all costs necessary to Put asset in place & ready to use Managements judgment to policies apply Includes interest during period of construction Land & Land Improvement Driveways, fences, parking lots, lightning Buildings & leasehold improvement (treated as intangible in textbook) Over useful life Over lease term, if less Equipment Group purchases - appraisals L03 Accounting for Depreciation Allocate cost over useful life Not the valuation issue Cost, Residual value, Depreciable cost, Estimated useful life (Set up depreciation schedule on excel) Methods of computation Strait line Production method Declining balance  Double declining  Sum of the years assets Use of declining method Theory 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) Note difference with tax law for losses on similar assets (like kind) - similar & dissimilar are not necessarily the same for financial and tax reporting Note that deferral of cost for tax purposes increases basis in asset above its fair value 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 Allocate cost of land among resource residual Cost depletion for books % 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 Treat as asset cost associated with successful drilling of a well - conservative Full costing method 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 Relevance vs. reliability Research of development costs - expense L07 Special Depreciation Problems Depreciation