Part 5: Long-Live Assets

Long-Lived Assets (What is it + 2 types)

Assets providing economic benefits over multiple periods, not meant for resale.

Tangible (PP&E): Land buildings, Machinery, Equipment

Intangible: non-physical assets

Acquisition of PP&E

All costs required to get PP&E go into PP&E account (like inventory)

Entry:

PP&E

• Cash

PP&E Expenditures (2 types)

Operating & Capital

Operating: recurring, small expenditures, ordinary repairs & maintenance, doesn’t extend useful life

Entry:

Operating Expense

• Cash

Capital: infrequent, large expenditures, additions & improvements, increases useful life, operating efficiency or capacity.

Entry:

PP&E

• Cash

Depreciation of PP&E (3 types)

No depreciation for assets with indefinite life

Straight Line

Dep exp = (acquisition cost - residual value) / useful life

Diminishing Balance

Dep exp: (acquisition cost - residual value) x multiplier / useful life

Units of Production

Dep exp: (acquisition cost -residual value) x (annual production / total production)

Disposal of PP&E (2 steps)

Step 1: Update dep & accumulated dep up to disposal date.

Step 2: Record disposal transactions

• Record cash or receivables

• Remove PP&E & Accumulated Dep

• Record Gain or Loss of disposal

Entry (Gain):

Cash

Accumulated Dep

• PP&E

• Gain on disposal

Entry (Loss):

Cash

Accumulated Dep

Loss on disposal

• PP&E

Gain or loss on disposal:

Sale Price - (Purchase Price - Accumulated Dep)

Adjustment (Impairment) of PP&E

@ end of fiscal year, company must make sure that the Net Balance of PP&E (carrying amount) be compared to its recoverable amount.

When Recoverable Amount < Carrying Amount:

Impairment Loss

• Accumulated Dep