CHAPTER 10 Flashcards
Terms and important equations or statements from chapter 10
Intangible assets
- patents
- building
- machinery
INITIAL COST =
PURCHASE PRICE + ALL EXPENDITURES NECESSARY TO BRING THE ASSET TO IT’S DESIRED CONDITION/LOCATION FOR USE
Cost of equipment
- purchase price
- sales tax
- transportation costs
- legal fees
- installation/testing
Cost of land
- purchase price
- attorney fees
- real estate fees
- title fees
- recording fees
- back taxes
- cleaning, filling, draining, etc.
Cost of building
- purchase price
- relator fees
- reconditioning cost
Cost of natural resources if purchased
- purchase price
- costs to meet conditions and location
Cost of natural resources if developed
- acquistion costs
- exploration costs
- development costs
-restoration costs
asset retirement obligations
Measured at fair value and recognized as a liability and corresponding increase in asset valuation.
COST =
PURCHASE PRICE + ALL COSTS NECESSARY TO BRING ASSET TO CONDITION AND LOCATION FOR USE
Patents
The right to manufacture a product or use a product
Copyrights
The right of protection given to a creator of a published work.
Trademarks
The right to display a word, slogan, symbol, or emblem.
Goodwill
Represents the unique value of a company as a whole over and above its identifiable tangible and intangible assets.
COST OF GOODWILL =
ACQUISITION PRICE - FAIR VALUE OF THE NET ASSETS REQUIRED
Lump sum purchases
The acquistion of a group of assets for a single sum.
Now cash acquisitions
- issuing debt or equity securities
- receiving donated assets
- exchange other assets
Deferred payments
Obligation to make a payment in the future.
Issuance of equity securities
When small company owner(s) contribute assets to the new corporation in exchange for ownership securities.
Donated assets
Donations are usually an enticement to do something that benefits the donor.
Capital budgeting
- requires management to forecast all future net cash flows generated by the assets
- includes decisions about the acquisition of PPE and intangible assets
FIXED ASSET TURNOVER RATIO =
NET SALES / AVG. FIXED ASSETS
Exchanges
The acquisition of an asset in exchange for an asset other than cash.
Commercial substance
When future cash flows change as a result of the exchange.
Self-constructed assets
Constructing assets for its own use rather than buying an existing one.
