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chapter 7

by: Evelin Notetaker

chapter 7 ACCT 2331

Evelin Notetaker
GPA 2.5
Acct Principles I
Kiran M Parthasarathy

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About this Document

These notes are over chapter 7 which covers long term assets. Goes over tangible and intangible assets.
Acct Principles I
Kiran M Parthasarathy
Class Notes
longterm assets
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This 4 page Class Notes was uploaded by Evelin Notetaker on Monday October 19, 2015. The Class Notes belongs to ACCT 2331 at University of Houston taught by Kiran M Parthasarathy in Summer 2015. Since its upload, it has received 11 views. For similar materials see Acct Principles I in Accounting at University of Houston.

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Date Created: 10/19/15
Accounting 2331 Chapter 7 Long Term Assets Two categories Tangible land land improvements equipment etc lntangible patents trademarks copyrights etc Property plant equipment Record cost of the land requires the purchase price of the land plus any expenditures to get the land ready for use Expenditures include back taxes attorney fees demolition cost assessment sale salvage parts Allocating costs Derived bene ts incur costs Similar to matching principal Depreciation is the cost over lifetime Land does not depreciate price in nite Basket purchase of assets Buying multiple assets at once Have to record in separate accounts Based on share values value each at appraisal estimate Appraisal Total appraisal X negotiated price allocated price Debit each and credit cash payment Depletion of natural resources when you use up resources Intangible assets have no physical substance two options Purchase assets copyrights Create internally and have protective patent Report intangible assets Original cost plus other fees Expense income statement incurred costs Patent is right to manufacture or process Copyright is protection to creator Trademark are words slogan symbol Goodwill is the value of the whole or worth of company Based on reputations and expectations of the company Calculated when acquisition or merger because this is the only time that numbers are accurate Goodwill debit Asset debit Liabilities credit Cash credit Capitalize expenditures when they bene t the future of the company Extensive repairs additional components Categorize expenditure as expense when they bene t current period Simple repairs for example maintenance Book value the original cost accumulated depreciation Service life is amount of time asset bene ts company Residual value or the salvage value is the end value Three depreciation methods Straightline Declining balance Activity base Straightline Depreciation expense asset s cost residual value service life The depreciation is expected to be the same each year Company should not depreciate residual value Estimate changes account past depreciation recalculate depreciation expense Declining balance Ending total the same as straightline Double declining method Calculate rst depreciable cost cost residual value lservice life X 2 double declining rate DDR Depreciation changes each year starts off high Keep track of depreciated amount is not more than depreciable cost Once the DDR is greater than the depreciable cost just plug in the amount that is left Activity based method Depreciable cost total units expected GAAP allows 2 methods of depreciation One can be used for the nancial statements Another for the tax books This allows a small tax break when they use the accelerated method Selling older assets Record depreciation for year Write off book value Record gain or loss Gain is credit loss is debit Impairment loss Less than book value When asset cash ows less than book value Calculate loss by book value fair value Impairment loss debit Asset credit Research and development classi ed as an expense Return on assets Net income average total assets Want a higher number Pro t margin Net income net sales Asset turn over ratio Net sales average total sales


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