7. Inventory & 8. PP&E (Depreciation) Flashcards
Dividend payout ratio
Common dividends / Net income
Defensive-interval ratio
Ratio of quick assets to daily op expenditures. Ratio is showing the length of time in days tt the firm can operate with it’s present liquid resources - so it’s a liquidity measure
Straight line depreciation
Use the cash equivalent. Not the downpayment + N/P amount
(Basis = cost - salvage value) / useful life
Basis vs BV
Basis: cost - salvage value
BV: cost - AD
!Note: Basis do not divide by useful life!
DDB depreciation
(SL x 2) x BV (Cost - AD) Ignore salvage value
At the end switch to sum-of-digits year or S/L to salvage value.
Never to actual cost
SYD sum of digits yrs
Basis x # yrs left in Asset life
N(n+1) / 2
UOP units of production
Basis x (hrs this yr)/total est hrs
Depletion depreciation
Depletion base = cost + addtl cost + rest cost - salvage value
Depletion base x (Units extracted/Total est. extraction)
Depletion per ton = above/total units extracted tt year
Impairment calculation GAAP & IFRS
2 step (IFRS: step 1 CV>FV written down to NRV)
- CV > sum expected future CF
- CV > FV
Exchange w comercial substance JE
Dr New Asset
(1. FMV given up + cash given - cash rcvd;
2. FMV A rcvd;
3. BV given up +cash paid - cash rcvd)
Dr loss (plug)
Cr Old asset (cost)
Cr cash
Cr Gain (plug)
Exchange w/o commercial substance JE,
(a) with cash received
Dr New Asset (Lower of 1,2,3 + GAIN/Cash Receipt
Dr. Cash
Cr old asset/ Asset given up
Cr Gain is dfrd unless boot was RCVD, NOT paid out
(Boot/(FMV A rcvd + boot)) x (BVCV1 - (Boot+FMV of A rcvd)
Exchange w/o commercial substance JE
(2) with cash paid out
Dr New Asset (Lower of 1,2,3)
Dr loss (plug)
Cr old asset or asset given up
Cr cash
Credit risk disclos. requirmt: A. Notes to f/s B. Suppmt info to f/s
A. Notes to f/s
LCNRV vs LCM
Ceiling: NRV: Selling price - disposal costs (freight out, sales comm.) Replacement Cost: Purchase or reproduction
Floor: NRV - Normal profit margin (no profit at all)
Dollar Value LIFO
Inventory at year end cost/ inventory at base yr cost = price index x units
Inventory Missing/ Lost
Beg Inv
+ Purchases
= CGAvail for sale
-CGSold – Sales x (1-Profit %)
= ei
-ei count
= Missing/lost inventory
PPandE and Investments Held for Sale
- Not depreciate
- Can be written up and down
- Amt is lower of CV and NRV=est. selling price - Cost disposal
Amortization of Intangibles (Software)
100k cap cost with SL of 5 years = $20k/yr.
At end of yr-3: CV $60K vs. Est. future revenue $23k minus disposal cost $8k=$15 NRV.
Softw wb written further down to $15k, req. addtl $45k exp=$60-$15k
Amortization of intangible.
Use the Larger Rate of (1) SL method, or (2) vol. of output approach or % of sales… x CV
This is further decreased/compared to (3) NRV
If determined - INDEFINITE USEFUL LIFE — No AMORTZ but ck for impairment
same pple as Trademark - if renew it indefinitely – No Amortz
Larger of 1 or 2:
- S/L x CV
- Current sales/ Est future sales x CV
Then, use 3 if lower:
- NRV.
