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Intro to Financial Accounting Chapter 7 Notes Goslinga

by: Virginia Johnson

Intro to Financial Accounting Chapter 7 Notes Goslinga ACG2021

Marketplace > University of Florida > Accounting > ACG2021 > Intro to Financial Accounting Chapter 7 Notes Goslinga
Virginia Johnson
GPA 3.7
Introduction to Financial Accounting
Goslinga,Jill Kristen

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About this Document

Chapter 7 Notes Long Term Assets, Plant Assets, Natural Resources and Intangibles
Introduction to Financial Accounting
Goslinga,Jill Kristen
Class Notes
financial accounting, Goslinga, UF, chapter 7, Long term Assets, Plant Assets, Natural Resources, Intangibles
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This 4 page Class Notes was uploaded by Virginia Johnson on Monday February 22, 2016. The Class Notes belongs to ACG2021 at University of Florida taught by Goslinga,Jill Kristen in Fall 2015. Since its upload, it has received 63 views. For similar materials see Introduction to Financial Accounting in Accounting at University of Florida.


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Date Created: 02/22/16
Financial Accounting Chapter 7 Plant Assets Natural Resources and Intangibles Fixed tangible and intangible assets are used in the business to earn a pro t unlike inventories that are just bought made and sold LongIived assets 0 Plant assets Property plant and equipment land buildings Expense associated with plant assets is depreciation expense Land is NOT expensed over time because its usefulness does not decrease Land doesn39t depreciate Costs that bring land to its intended use 0 Purchase price commissions survey and legal fees back property taxes paid grading and removing unwanted buildings Buildings purchased and Constructed Costs that bring Purchased Buildings to its intended use 0 Purchase Price Broker39s commission Taxes paid costs to repair and renovatebefore you use it 0 Costs that bring Constructed Buildings to its intended use 0 Architectural fees and contractors39 charges Materials Labor and overhead interest on funds borrowed during construction period Equipment Cots that bring Equipment to its intended use 0 Purchase price transportation insurance in transit sales tax installation LumpSum Basket Purchases 0 Several assets purchased in a group at one price Example Asset Market Total Market of total Total Cost Cost of Value Value Market each asset Value Land 100000 500000 20 450000 90000 Building 400000 500000 80 450000 360000 500000 100 450000 Capital Expenditure vs an Immediate Expense 0 Does the cost extend the asset39s usefulness or its useful life Or does it maintain the asset39s condition or return to prior condition 0 Capital Expenditures Increase the assets capacity of extend its useful life 0 Major engine overhauI modi cation for the body of a truck addition to storage capacity of truck 0 Expense Maintain the asset or restore it to working order 0 Repair transmission oil change lubrication replacement of tires windshield or paint job 0 Mistakes o If a company expenses a cost that should have been capitalized This error overstates expenses and understates net income in the year of the error o If a company capitalizes a cost that should have been expensed This error understates expenses and overstates net income in the year of the error Depreciation o Allocation of plant asset39s cost to expense over its life 0 Supports matching principle Causes 0 Physical wear and tear Obsolescence computers and electronic equipment 0 Land is NOT depreciated 0 Book Value of a Plant Asset Cost Accumulated Depreciation o Depreciation Methods Straightline Cost Residual Vaue Useful life in YEARS As an asset is used in operations Accum Dep increases 0 Book Value of the asset decreases 0 Units of Production 0 Cost Residual Vaue Useful life in UNITS Depreciation per unit Depreciation per unit x Activity for period DoubleDeclining Balance 0 Straight line rate x 2 OR 2life in years DDB rate 0 Cost Accum Dep Book Value DDB rate x Book Value Depreciation Year 1 25000 0 x 210 5000 Year 2 25000 5000 x 4000 210 Final year depreciation is a 39plug amount needed to reduce book value to residual value Depreciation for Tax Purposes Accelerated depreciation provides fastest tax deductions Tax deductions decrease tax payments 0 Tax savings can be reinvested in business Partial Year Depreciation Annual Depreciation x months from date of purchase to end of year12 0 Change in Estimate 1Cacuate Book Value in the date of the change in useful and or residual value 2Use the Book Value as the new cost and depreciate over the remaining useful life 0 Disposal of Plant Assets Selling a Plant Asset lf Cash received is greater than book value D Gain o If cash received is less than book value D Loss 0 Journal 0 Cash xx 0 AccumDep xx 0 Loss xx Asset xx Gain xx Exchanging Plant Assets 0 Journal 0 NewAsset xx 0 AccumDep xx 0 Loss xx Old Asset xx Cash xx Gain xx 0 Natural resources Oil and gas reserves coal mines timber As natural resources are extracted its cost is transfer to inventory Later inventory is sold and its cost is transferred to Cost of Goods Sold When these assets are physically used D depletion Not like depreciation it is computed like UnitsOf Production If all of the extracted resources is sold it is an expense If a portion of the extracted resource is NOT immediate sold is becomes inventory 0 Intangible Assets Not physical form carry special rights Examples 0 Patents 0 Granted by federal government 0 Lasts 20 years Copyrights o Granted by federal government 0 Can extend 70 years Trademarks 0 Useful life set by contract Goodwill 0 Only recorded when entire company is purchased 0 De ned as excess of purchase price of the company over the market value of its net assets 0 Not amortized Two categories 0 Finite Lives 0 Amortization recorded 0 In nite Lives 0 Impairment Asset Impairment 0 Both tangible and intangible assets must be tested yearly for impairment 0 Expected future cash ows less than asset39s book value 0 Carrying value adjusted to fair value Impairment Steps 0 If Net Book Value gt Estimated Future Cash Flows then an asset is impaired and proceed to step 2 0 Net Book Value Fair Value Impairment Loss Analyze Rate of Return on Assets 0 Net Income Average Total Assets 0 Average Total Assets Beginning Total Assets End Total Assets2


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