Long Lived Assets Flashcards
What does expensing an expenditure result in
Lower assets, equity, op cash
Higher expenses
Lower earnings year 1
Higher subsequent earnings
What does capitalizing an asset result in
Higher assets, equity and op cash
Lower expenses
Higher earnings year 1
Lower earnings subsequent years
How does accelerating depreciation affect BS, IS, CF
Early years: Higher dep exp Lower net income Lower ROA and ROE Same cf
What effect does longer useful life and higher salvage value have on BS IS CF
Lower depreciation
Increased net income
When is an asset impaired
IFRS: carrying value > recoverable amount
US GAAP: carrying value > undiscounted future cash flows
What is recoverable amount (under IFRS)
Greater of fair value less selling costs and value in use (pv of cash flows)
What to do if asset impaired
IFRS: write down to recoverable amount (loss recoveries allowed)
GAAP: write down asset to fair value (no loss recoveries allowed)
Effect of asset impairment/write downs
First year, ROA and ROE decrease
Subsequent years they increase
No cash flow changes
Average age of fixed asset (in years)
Annual dep exp
Average depreciable life
Annual dep exp
Remaining useful life
Annual dep exp
What is a finance lease
Purchased asset financed with debt
What is finance lease expense
Depreciation of asset and interest on loan
What is a finance lease payment
Op outflow (interest exp) Financing outflow (principal reduction)
What is operating lease
A rental arrangement
