International accounting standards 8 Flashcards
Property, plant and equipment/ plant assets/fixed assets (znaczenie)
rzeczowe aktywa trwałe
characteristic of property, plant, and equipment
- Assets of a durable nature
- “Used in operations” and not for resale.
- Long-term in nature and usually depreciated.
- Possess physical substance
- Includes: Land, Building structures (offices, factories, warehouses), and Equipment (machinery, furniture, tools).
acquisition (znaczenie)
nabycie
Acquisition and measurement:
- are measured at historical cost (equivalent price of obtaining the asset and bringing it to the location and condition necessary for its intended use)
- In general, costs include:
- Purchase price, including import duties and non-refundable purchase taxes, less trade discounts and rebates.
- Costs attributable to bringing the asset to the location and condition necessary for it to be used in a manner intended by the company.
Cost od land (znaczenie)
koszty gruntów
Cost of land:
- All necessary costs incurred in making land ready for its intended use increase (debit) the Land account
- cash purchase price
- closing costs such as title and attorney’s (adwokat) fees
- real estate brokers’ commissions
- accrued property taxes and other liens on land assumed by purchaser
accrued property taxes (znaczenie):
naliczone podatki od nieruchomości
liens on land (znaczenie)
zastawy na gruntach
Land improvements (znaczenie)
ulepszenie terenu
depreciation expense (znaczenie)
amortyzacja ŚT
Characteristic of land improvements:
- Improvements with limited lives, such as private driveways, walks, fences, and parking lots
- Investment - Land acquired and held for speculation
- Inventory - land held by a real estate concern for resale
Cost of buildings:
- Includes all expenditures related directly to acquisition or construction
- Professional fees and building permits
- Remodeling and replacing or repairing the roof, floors, electrical wiring, and plumbing
- Materials, labor, and overhead costs incurred (poniesione) during construction
- Companies consider all costs incurred, from excavation to completion, as part of the building costs
- Purchase price, closing costs (attorney’s fees, title insurance, etc.) and real estate broker’s commission
excavation (znaczenie)
wykopy
Cost of equipment:
- Include all costs incurred in acquiring the equipment and preparing it for use
- Cash purchase price
- Non-deductible sales taxes (VAT, excise – akcyza)
- dreight charges
- insuarance during transit paid by purchaser
- Assembling (złożenie), installing, and testing
non- deductible (znaczenie)
niepodlegające odliczeniu
expenditures (znaczenie)
nakłady
expenditures:
expense
asset
-ordinary (zwykła) repairs
* expenditures to maintain (utrzymanie) the operating efficiency and productive life of the unit.
* debit to [Maintenance and Repairs] Expense
- Additions and Improvements
* costs incurred to increase the operating efficiency, productive capacity, or useful life of a plant asset.
* debit the [plant] asset account
* referred to as capital expenditures
amortization expense (znaczenie)
amortyzacja wnip
What is depreciation?
Depreciation is the accounting process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset.
It applies to all plant assets except for land.
Allocating costs of long-lived assets:
- Fixed assets = Depreciation expense
- Intangibles = Amortization expense
- Mineral resources = Depletion expense
Three important factors of depreciation:
COST - All expenditures necessary to acquire the asset and make it ready for its intended use
Useful life - Estimate of the expected life based on need for repair, service life, and vulnerability to obsolescence (podatność na starzenie się)
Residual value - Estimate (oszacować) of the asset’s value at the end of its useful life
Depreciation methods:
Management selects the method it believes best
measures an asset’s contribution to revenue over its
useful life. Examples include:
1) Straight-line method
2) Units-of-activity method
3) Declining-balance method
Straight-line method:
- Expense is same amount for each year
- Depreciable base = Cost less residual value
Units-of-Activity Method:
- Companies estimate total units of activity to calculate depreciation cost per unit
- Expense varies based on units of activity
- Depreciable cost is cost less salvage value
- Often referred (odniesione) to as units-of-production method
Declining- Balance Method
- Accelerated (przyspieszona) method
- Decreasing annual depreciation expense over asset’s useful life
- Double declining- balance rate is double the straight-line rate
- Rate applied to book value
Depreciation and income taxes:
- Tax laws do not require taxpayer to use the same depreciation method on the tax return that is used in preparing financial statements
- Many companies use straight-line in their financial statements to maximize net income.
- They also use an accelerated depreciation method on their tax returns to minimize their income taxes.
Disposals (znaczenie)
zbycie
Companies dispose of plant assets in three ways:
- Retirement (wycofanie): Equipment is scrapped (złomowany) or discarded (wyrzucany)
- Sale: Equipment is sold to another party
- Exchange: Equipment is traded for new equipment
How record depreciation?
Record depreciation up to the date of disposal.
Eliminate asset by:
(1) debiting Accumulated Depreciation,
and (2) crediting the asset account.
Retirement (znaczenie)
wycofanie z użytku
Retirement:
- no cash is received
- Decrease (debit) Accumulated Depreciation for full amount of depreciation taken over life of asset
- Decrease (credit) asset account for original cost of asset
Sale:
- Compare the book value of the asset with the proceeds received from the sale.
- If proceeds exceed the book value, a gain on disposal occurs; if proceeds are less than the book value, a loss on disposal occurs (Jeżeli wpływy przekraczają wartość księgową, następuje zysk ze zbycia; jeśli wpływy są niższe niż wartość księgowa, następuje strata ze zbycia)
Natural resources:
- Natural resources consist of standing timber (drewno) and underground deposits of oil, gas, and minerals
- Distinguishing characteristics:
- Physically extracted in operations
- Replaceable only by an act of nature
- Cost is the price needed to acquire the resource and
prepare it for its intended use.
Depletion:
- The allocation of the cost to expense in a rational and systematic manner over the resource’s useful life.
- Companies generally use units-of-activity method
- Depletion generally is a function of the units extracted
Total cost - residual value/ total estimated units available = depletion cost per unit
Intangible assets (niematerialne aktywa):
- Identifiable; lack physical existence; not monetary assets
- Rights, privileges, and competitive advantages
- Normally classified as non-current asset
- Limited life or indefinite life
- Patents
- Copyrights
- Franchises and licenses
- trademarks
- trade names
-goodwill
Limited-life intangibles:
- amortize to expense
- credut asset account or accumulated amortization
Indefinite-life Intangibles:
- no foreseeable (do przewidzenia) limit on time asset is expected to provide cash flow
- no amortization
Intangible assets: patents
- Exclusive right to manufacture, sell, or otherwise control an invention for 20 years from date of grant (limited life)
- Capitalize costs of purchasing a patent and amortize over 20-year life or its useful life, whichever is shorter
- Expense any R&D costs in developing a patent
- Legal fees incurred successfully defending a patent are capitalized to Patents account
Intangible assets: copyrights
-Gives owner exclusive right to reproduce and sell an artistic or published work
- granted for life of creator plus 70 years
- capitalize cost of acquiring and defending
Intangibel assets: Trademarks and trade names
- Word, phrase, jingle, or symbol that distinguishes or identifies a particular enterprise or product
- Legal protection for indefinite number of 20-year renewal periods
- Capitalize acquisition costs. No amortization
Intangible assets: Franchises
- Contractual arrangement between a franchisor and a franchisee
- For example: CPC, Subway, and Europcar are franchises
- Franchise (or license) with a limited life should be amortized to expense over its useful life
- If life is indefinite, cost is not amortized
Intangible assets: goodwill (wartość firmy)
- Includes exceptional management, desirable location, good customer realtions, skilled employees, high-quality products, etc.
- only recorded when an entire business is purchased
- goodwill is recorded as excess of purchase price over fair value of net assets acquired
Research and development (R&D) cost are
not in themselves intangible assets.
Research activities:
original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding
Development activities:
Application of research findings or other knowledge to a plan or design to produce new or substantially improved materials, devices, products, processes, systems, or services before the start of commercial production or use.
Research and Development Costs:
Expense vs. Capitalize
- research costs must be expansed as incurred
- development costs may or may not be expensed as incurred
- capitalization begins when the project is far enough along in the process such that the economic benefits of the R&D project will flow to the company (the project is economically viable)
