Chp. 8.3 - long-term assets Flashcards
what are some examples of tangible assets
- land, buildings, factories, equipment, machinery, vehicles, furniture
examples of intangible assets
patents, trademarks, customer lists, licenses, copyrights, software
what’s something unusual between current assets and long-term assets on the balance sheet presentation
line disparity - more lines to current assets than long-term assets
why is there a line disparity between current and long term assets on the balance sheet
due to accounting standards about the PP&E asset criteria
what’s the criteria for assets to being recognized as PP&E?
- 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
- have been acquired, constructed, or developed with the intention of being used on a continuing basis
- are not intended for sale in the ordinary course of business
why is land grouped in PP&E even though it appreciates with time?
land represents property and is reported on the balance sheet at cost
how is the appreciation of land reflected?
through a gain on disposal, upon the ultimate sale of the land
what are the characterisitics of intangible assets
- assets that do not have a physical form
- can have finite or infinite lives
- 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”
how to figure out what amount is recoverable when testing the intangible long-term asset with an indefinite life
need to know fair value and carrying value
define fair value
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
define impairment
reflects the state of an asset where its carrying value exceeds its fair value
when is a test conducted on the fair value and carrying value of an intangible long-term asset?
when circumstances change and trigger the company to believe the fair value of the intangible is lower than the varying value (impairment)
can impairment losses be reversed if the asset’s fair market value increases?
no
book a journal entry on impairment losses
DR. Impairment loss - intangible assets
CR. Customer lists
to record an impairment loss on customer lists
define a patent
an exclusive right granted by the federal government to produce and sell an invention
define trademark (trade name/brand name)
represents a unique/distinguishing combination of letters, words, images, sounds, and designs that is recognizable in the marketplace
define customer list
valuable info about customers (contact info, demographics, buying habits that can increases the effectiveness of a company’s sales and marketing efforts
define license
the right granted by a government or business to sell a specific product or service
define copyright
an exclusive right to produce or reproduce various creative works
define return on assets (ROA)
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
formula for ROA?
ROA = (net income + interest expense)/average total assets
what are the characteristics of the ROA formula?
- interest expense is included because it’s the company’s cost of borrowing
- total assets to be averaged - to provide an accurate measure, reflecting the balance throughout the same period
what’s the formula to the average total assets
average total assets = (total assets, beginning of period + total assets, ending of period)/2
