Chp. 8.3 - long-term assets

Question 1

what are some examples of tangible assets

Answer 1

• land, buildings, factories, equipment, machinery, vehicles, furniture

Question 2

examples of intangible assets

Answer 2

patents, trademarks, customer lists, licenses, copyrights, software

Question 3

what’s something unusual between current assets and long-term assets on the balance sheet presentation

Answer 3

line disparity - more lines to current assets than long-term assets

Question 4

why is there a line disparity between current and long term assets on the balance sheet

Answer 4

due to accounting standards about the PP&E asset criteria

Question 5

what’s the criteria for assets to being recognized as PP&E?

Answer 5

1. are used in the production or supply of goods and services, for rentals to others, for admin purposes or for the development, construction, maintenance or repair of other PP&E
2. have been acquired, constructed, or developed with the intention of being used on a continuing basis
3. are not intended for sale in the ordinary course of business

Question 6

why is land grouped in PP&E even though it appreciates with time?

Answer 6

land represents property and is reported on the balance sheet at cost

Question 7

how is the appreciation of land reflected?

Answer 7

through a gain on disposal, upon the ultimate sale of the land

Question 8

what are the characterisitics of intangible assets

Answer 8

1. assets that do not have a physical form
2. can have finite or infinite lives
3. amortized finite life, no amortization with an indefinite life - ASPE requires that they need to be tested for impairment “whenever events and changes in circumstances indicate that its carrying amount may not be recoverable”

Question 9

how to figure out what amount is recoverable when testing the intangible long-term asset with an indefinite life

Answer 9

need to know fair value and carrying value

Question 10

define fair value

Answer 10

the amount of consideration that would be agreed upon in an arm’s length transaction between knowledgeable, willing parties who are under no compulsion act

Question 11

define impairment

Answer 11

reflects the state of an asset where its carrying value exceeds its fair value

Question 12

when is a test conducted on the fair value and carrying value of an intangible long-term asset?

Answer 12

when circumstances change and trigger the company to believe the fair value of the intangible is lower than the varying value (impairment)

Question 13

can impairment losses be reversed if the asset’s fair market value increases?

Answer 13

no

Question 14

book a journal entry on impairment losses

Answer 14

DR. Impairment loss - intangible assets
CR. Customer lists
to record an impairment loss on customer lists

Question 15

define a patent

Answer 15

an exclusive right granted by the federal government to produce and sell an invention

Question 16

define trademark (trade name/brand name)

Answer 16

represents a unique/distinguishing combination of letters, words, images, sounds, and designs that is recognizable in the marketplace

Question 17

define customer list

Answer 17

valuable info about customers (contact info, demographics, buying habits that can increases the effectiveness of a company’s sales and marketing efforts

Question 18

define license

Answer 18

the right granted by a government or business to sell a specific product or service

Question 19

define copyright

Answer 19

an exclusive right to produce or reproduce various creative works

Question 20

define return on assets (ROA)

Answer 20

accounting performance measure that shows how effective a company’s assets are in generating net income - tells you how well management used is capital to generate income, measure how much benefit the company actually derived

Question 21

formula for ROA?

Answer 21

ROA = (net income + interest expense)/average total assets

Question 22

what are the characteristics of the ROA formula?

Answer 22

1. interest expense is included because it’s the company’s cost of borrowing
2. total assets to be averaged - to provide an accurate measure, reflecting the balance throughout the same period

Question 23

what’s the formula to the average total assets

Answer 23

average total assets = (total assets, beginning of period + total assets, ending of period)/2