Chapter 11: Long-Lived Assets

These flashcards cover key concepts, definitions, and differences related to long-lived assets as discussed in Chapter 11 of the lecture notes.

What defines a long-lived asset?

An asset expected to yield economic benefits over a period longer than one year.

How are long-lived assets measured under the expected benefit approach?

They are measured at their estimated value based on future output.

In what way does US GAAP typically measure long-lived assets?

US GAAP uses historical cost less accumulated depreciation.

What is the economic sacrifice approach in measuring long-lived assets?

It measures the asset at its cost when purchased.

What is avoidable interest in relation to self-constructed assets?

Interest that could have been avoided if the expenditures for the long-lived assets had not been made.

What costs must be capitalized when acquiring a long-lived asset?

All costs necessary to acquire the asset and make it ready for use.

What are deferred costs?

Incremental costs related to a contract that must be capitalized and amortized over the life of the contract.

How are intangible assets recorded when acquired?

They are initially recorded at their transaction price.

What is the difference between amortizable and indefinite-lived intangible assets?

Amortizable intangibles are deducted over their expected life while indefinite-lived intangibles, like goodwill, are not amortized.

What is the significance of capitalizing avoidable interest?

It reduces the interest expense reported and increases the asset's carrying amount.

What happens if the carrying value of an asset exceeds its expected future benefits?

An impairment charge must be recognized.

How is the impairment of indefinite-lived intangible assets assessed?

Through a two-step process involving qualitative and quantitative assessments.

What impact does the choice of depreciation method have on financial statements?

It can significantly impact earnings reported.

What distinguishes the double declining balance method of depreciation?

It is an accelerated method that takes more depreciation in the early years.

When might an impairment loss be reversed under IFRS?

If the asset recovers in value, unlike U.S. GAAP where it cannot be written up.

What is the relationship between R&D costs and intangible assets under GAAP?

R&D costs are generally expensed when incurred, affecting the balance sheet value of intangibles.

What is the significance of capitalization criteria for expenditures?

They determine whether costs should be capitalized as part of an asset or expensed immediately.

What factors affect the calculation of depreciation for long-lived assets?

Useful life, depreciation pattern, and estimated salvage value.

What must be considered when comparing firm ROA ratios?

Historical costs and the age of long-lived assets, which can distort reported ROA.

How does IFRS differ from GAAP regarding tangible assets?

IFRS allows revaluation of assets to fair value; GAAP does not.

What is the role of analysts in understanding long-lived assets?

To scrutinize disclosures related to the measures and estimates affecting asset valuations.