FA II Chapter 10

types of assets

tangible and intangible

PPE examples

land, equipment, machinery, furniture, autos, and trucks

natural resources

oil and gas deposits, timber tracts, and mineral deposits

types of intangible assets

patents, trademark, copyrights, franchises, goodwill

costs to be included in asset valuation for PPE

include all expenditures necessary to get the asset in condition and location for its intended use

capitalize the cost if

-Provide future economic benefit (beyond the current period),

-Are necessary to get an asset ready for its intended use, and

-Are directly attributable to acquiring, constructing, or producing the asset.

costs to be capitalized

PPE , intangible assets

can be aquired by purchase, donation, exchange, lease, business combination, self construction

initial cost = purchase price + all expenditures necessary to bring asset to desired condition and location for use...

intangible assets definition

productive assets that lack physical substance and have long term but typically uncertain benefits

asset valuation of intangibles

all expenditures necessary to get the asset in condition and location for its intended use

land vs land improvements

land doesn't depreciate

land improvements do and are separately identifiable costs (enhancements to property such as parking lots, driveways, private roads, fencing, landscaping, and sprinkler systems (finite lives))

land held for speculative investment or future use

reported as investments or other assets

land acquisition costs include

purchase price, attorney's fees, title, recording fees, commissions, back taxes, mortgages, liens, clearing, filling, draining, and removing old buildings

future restoration costs are under

natural resource

acquisition costs do not include

finite costs like sprinklers or annual costs/regularly occurring like property taxes

what account is borrowing 275,000 to pay building contractor (signed a note with the bank)

other accounts (long term (N/P))

asset retirement obligation

legal obligations associated with the disposition (disposal/retirement) of property plant and equipment and natural resources, often as a result of acquiring those assets (ex requirement to restore land to its original condition after oil extraction is completed)

what does GAAP require of ARO

recognized as a liability and measured at fair value usually at present value

if ARO arises at the inception of an assets life (right when aquired)

the fair value of liability is added to the acquisition cost of the asset

dr equipment 115k

cr cash 100k

cr aro 15k

if ARO arises during the assets operating life

it will build asset and liability gradually dr equipment 15k cr aro 15k

ARO is revalued each year

as PV increases

dr accretion expense

cr ARO liability

cr (if excess) cash

when ARO is fulfilled

liability is removed, actual cash is spent, and the difference is a gain or loss

finding expected value

cash outflow probability + cash outflow probability + ... = cash outflow of expected value in example its in 4 years

need to find PV using present value tables

present value tables

table 2

present value of $1

used for a single future payment

present value tables

table 4

present value of an ordinary annuity of $1

used for equal payments at the end of each year (pay first period at the end of the first period)

present value tables

table 6

present value of an annuity due of $1

used for equal payments due at the beginning of each year (pay first payment immediately)

equipment acquisition costs

purchase price (less discounts), taxes, transportation, installation, testing, trial runs, and reconditioning

Land Acquisition Costs

purchase price, attorney's fees title, recording fees, commissions, back taxes, mortgages, liens, clearing, filling, draining, and removing old buildings

DOESN'T DEPRECIATE

land improvements acquisition costs

separately identifiable costs

Buildings Acquisition Costs

purchase price, attorney's fees, commissions, and reconditioning

natural acquisition costs

acquisition, exploration, development, and estimated future restoration costs

independent contractor // time of the purchaser

Traditionally, not included in asset calculation (just an employee doing their job don't capitalize) unless maybe hiring a separate contractor whose speciality is advising on this maybe

taxes in arrears

pay to get the land (unpaid taxes from previous owner)

typical aquisition costs of patents, copyrights, trademarks or tradenames

purchase, price, legal fees, filing fees, NOT INCLUDING INTERNAL R&D (uncertainty, don't know the value )

franchises typical acquisition costs

franchises fee plus any legal fees

goodwill acquisition fees

excess of the fair value of the consideration given for a company over the fair value of the identifiable net assets acquired

* only comes about because of acquisition activity

intangible asset depreciation

DOES NOT DEPRECIATE, AMORTIZES

lump sum purchases

allocate with fractions

PPE

productive assets that get their value from long-term use in operations rather than resale

registration

included in asset value for equipment

commission

included in asset value for land