Transcript Chapter 7: Cash and Receivables

Long-Term Operating Assets
Property, Plant, and Equipment:
(PP&E) Tangible and include: land,
building, structures and equipment,
machinery, furniture and tools
Natural Resources, Physical rights to
minerals rights, water, lumber, oil…
Intangibles: Legal rights to copyrights,
patents, franchises, goodwill…
Acquisition Cost
Initially valued at historical cost.
Historical cost includes:
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the asset’s cash or cash equivalent price
(net present value), and
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the cost of readying the asset for use
The basic rule is that the exchange must be
based on:
1. the fair value of the asset given up, or
2. the fair value of the asset received
whichever is clearly more evident.
Exchanges
For financial report:
“Like kind”--defer gains & losses
Dissimilar--recognize gain to extent
cash receive, recognize losses
For tax purposes:
Like-kind trade your “gains”, sell your
“Losses”.
Depreciation, Depletion,
Amortization
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Limited Life Assets are expensed:
Straight-line: (Cost-Salvage)/Life
Life may be stated in years or units.
Financial report: May use a faster rate:
200%, 150% or some other systematic
method.
• Tax rules set the legal expense rates and
the life.
Costs Subsequent to Acquisition
If cost incurred increase future benefits,
capitalize costs.
If costs maintain a given level of services,
expense costs.
Amortization of Intangible Assets
• Intangibles are written off (SL) over their
useful lives, where the assets have
determinable useful lives.
• Where the intangibles have indefinite
useful lives, they are not amortized, but
valued each year.
• Acquired intangibles should not be
written off at acquisition.
Goodwill
• Goodwill is the most intangible of all assets.
• Goodwill can be sold only with the business.
• Goodwill is the excess of:
• the cost (purchase price) over
• the amounts (price) assigned to tangible
and intangible net assets.
• Goodwill has an indefinite life and should not
be amortized.
Goodwill Write-Off
• Acquired goodwill has an indefinite life
and should not be amortized but is
subject to impairment.
• Impairment test should be performed
at least annually.
• If applicable, loss recorded.