Reading 28- Long-Lived Assets Flashcards
Distinguish between costs that are capitalized and costs that are expensed in the period in which they are incurred.
Long-Lived Assets= long-lived assets include tangible assets, intangible assets, and financial assets.
These assets are either expensed or capitalized (put in the asset column of balance sheet):
Capitalized Long-Lived Assets: DECREASE CASH; INCREASE PPE
Costs that are expensed: create INCREASED EXPENSES; DECREASES CASH, DECREASES EQUITY
Compare the financial reporting of the following types of intangible assets: purchased, internally developed, acquired in a business combination.
Financial Reporting for:
Purchased Intangible Assets= GOODWILL; an example of goodwill would be the customer base, its loyalty. It is the net difference between the:
***(PURCHASED COST- VALUED COST= REMAINING GOODWILL)
- *** GOODWILL IS CAPITALIZED ON BALANCE SHEET
Acquired Intangible Assets- THESE include intangibles like PATENTS, COPYRIGHTS, SOFTWARE which are what?
***AMORTIZED OVER THEIR LIFESPAN AS AN ASSET
Explain and evaluate how capitalizing versus expensing costs in the period in which they are incurred affects financial statements and ratios.
Well, just in general, capitalizing vs expensing will create a big problem with: Profit after tax, EBIT, Asset Turnover Ratio, ROA.
Describe the different depreciation methods for property, plant, and equipment and calculate depreciation expense.
DDB method and straight line depreciation expense calculations for each year.
DDB: We do NOT use any salvage value:
DDB= value of the asset/ total years usable X 2= new value of asset for the next year
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SL Depreciation= cost- salvage value/ number of usable years
Describe how the choice of depreciation method and assumptions concerning useful life and residual value affect depreciation expense, financial statements, and ratios.
Well, the method of depreciation that you use will overstate or understate profits because it factors into the income statement. That’s why you need to look at the CFO to see the TRUE cash flow or Net Income.
Describe the different amortization methods for intangible assets with finite lives and calculate amortization expense.
- ALL ITEMS THAT ARE INTANGIBLE ARE AMORTIZED EXCEPT FOR TRADEMARKS BECAUSE THEY ARE CONSIDERED TO HAVE INDEFINITE LIFETIME.
- ALL OF THESE ARE PUT ON THE BALANCE SHEET AS INTANGIBLE ASSETS (ASSETS ACCOUNT)+ ACCUMULATED AMORTIZATION (AMORTIZATION EXPENSE CUT OUT OF INCOME STATEMENT?)
- straight-line method is most commonly used to amortize
Describe how the choice of amortization method and assumptions concerning useful life and residual value affect amortization expense, financial statements, and ratios.
Amortization Method affects everything. It will affect ROA, ROE because it will affect the bottom line net income because of the changes in the amortization expenses.
-it will affect just like the depreciation method affects factors on financial statements and ratios.
Describe the revaluation model.
Revaluation model is just a special case under IFRS that allows you to put the value of an asset for its current price depending on what it goes for on the market.
Explain the impairment of property, plant, and equipment and intangible assets.
Both IFRS + GAAP tells to write a “loss” on the income statement for damages to assets.
IFRS: Determine Carrying Value= (amount Paid- salvage value)
carrying value > value in use after depreciations
whats the difference?
You will record that as a loss.
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GAAP: CARRYING VALUE> FUTURE CASH FLOWS?
YES? PLEASE RECORD THAT ON THE LOSS STATEMENT UNDER US GAAP.
Explain the derecognition of property, plant, and equipment and intangible assets.
De-recognition of property= occurs when assets are sold, exchanged, or abandoned.
+/- change on the IS = (SALES OF PURCHASED ITEMS) - (CARRYING COSTS)
!CAN BE A LOSS ON THE INCOME STATEMENT OR A GAIN ON THE INCOME STATEMENT!
Explain and evaluate how impairment, revaluation, and derecognition of property, plant, and equipment and intangible assets affect financial statements and ratios.
wILL DECREASE ROA, ROE, because an impairment in an asset will be MORE AMOUNT OF EXPENSES WHICH MEANS MORE LOWER NET INCOME.
Describe the financial statement presentation of and disclosures relating to property, plant, and equipment and intangible assets.
1
Analyze and interpret financial statement disclosures regarding property, plant, and equipment and intangible assets.
1
Compare the financial reporting of investment property with that of property, plant, and equipment.
IFRS gives firms the choice of using a cost model or a fair value model when valuing investment property.????
Explain and evaluate how leasing rather than purchasing assets affects financial statements and ratios.
A lease is a contractual arrangement whereby the lessor, the owner of an asset allows a lessee to use the asset for a specified period of time in return for periodic payments.
OPERATING LEASE= RENTAL EXPENSES IN INCOME STATEMENTS
CAPITAL LEASE/FINANCIAL LEASE= BALANCE SHEET HAS EQUAL ADDITION OF ASSETS AND LIABILITIES FOR A WHILE.
