Chapter 9: Long-Lived Tangible and Intangible Assets

Long lived assets

are assets that provide benefits over a length of time (a year or more). They help provide goods or services, but the asset will not be sold.

productive assets

Long lived assets can also be called .

tangible assets and intangibles assets

The two categories for long-lived assets are .

fixed assets

Tangible assets, also known as , are physical assets that are subject to depreciation (land, buildings, equipment).

Intangible assets

are non-physical assets that have a limited life. They are created through legal documents and are subject to amortization (patents, logos, trademarks, slogans).

Goodwill and trademarks

have an unlimited life and are NOT amortized.

Equation for Net Book Value (TANGIBLE)

Equation for Net Book Value (INTANGIBLE)

land improvements

Tangible assets can include that can enhance the asset and its functionality (walkways, sprinklers, roadways, fencing, etc).

Land

is not depreciable.

Construction in progress

_ relates to the construction of tangible assets such as buildings and equipment.

cost principle

The has acquisition costs like the initial purchase to prep assets for use (transportation, construction, etc).

capitalizing the cost

When costs are recorded as assets it is called , which delays it's recording as an expense.

increase; decrease

Capitalizing costs causes assets to on the balance sheet and expenses to on the income statement.

Purchase cost
Legal fees
Survey fees
Title search fees

The capitalized costs for land:

Purchase cost
Construction cost
Legal fees
Appraisal fees

The capitalized costs for buildings:

Purchase cost
Construction cost
Transportation cost
Sales taxes
Installation fees

The capitalized costs for Equipment:

basket purchase

A(n) is when assets like land, equipment, and buildings are bought together.

Allocation

for each asset is determined by the relative fair market value of each asset.

Ordinary repairs and maintenance.
Extraordinary repairs, replacements, and additions.

The two types of expenditures:

WANTED

Ordinary repairs and maintenance are changes and small expenditures, which are expensed on the income statement. They don't extend the life of the asset.

NEEDED

Extraordinary repairs, replacements, and additions are changes and are large expenditures. The asset's productivity is increased. They are capitalized.

cost allocation

Depreciation is a process that matches cost of operational assets with periods of its useful life.

balance sheet; income statement

To record depreciation, the acquisition cost of an asset moves from the to the as an expense.

Debit
Income statement

What is the normal balance of Depreciation Expense and what financial statement is it on?

Credit
Balance sheet

What is the normal balance of Accumulated Depreciation and what financial statement is it on?

Depreciation calculations

The acquisition cost (including capitalized cost), estimated useful life, and the estimated residual (aka salvage) value (what the asset is worth if you sell it is all information you need to know to do:

Straight Line Method

The easiest and most widely used method. It indicates that depreciation expense is a constant amount each year, accumulated depreciation increases by an equal amount each year, and book value decreases the same amount each year.

Equation for Depreciation Expense (Straight Line Method)

Units of Production

is used if the life of an asset is generally measured in terms of units of production.

Equation for Depreciation Expense (Units of Production Method)

Declining Balance

A greater depreciation expense is taken from the asset in the earlier years of its life versus its later years.

Equation for Depreciation Expense (Declining Balance Method)

least and latest

The says taxpayers want to pay the least tax that is legally permitted and want to pay on the latest possible date.

Its value decreases and it can't be recovered.

An asset is impaired when:

Impairments

represent a lower asset value than the assets carrying value.

gain

A(n) has a normal credit balance.

loss

A(n) has a normal debit balance.

1. Update depreciation to the date of disposal.
2. Record the disposal.

Two adjusted journal entries are required for the disposal of an asset to…..

Debit Cash
Debit Accumulated Depreciation
Credit Equipment
Credit Gain on Disposal

Journal entry if there is a gain on disposal:

Debit Cash
Debit Loss on Disposal
Debit Accumulated Depreciation
Credit Equipment

Journal entry if there is a gain on disposal:

Debit Loss

There is IF cash received is less than asset's book value.

Equation for annual Depreciation:

Amortization

is similar to depreciation, but it is specifically used for intangible assets. It writes off the cost of an asset over its useful or legal life.

Trademarks

Slogans, logos, or names associated with a specific business.

Copyrights

An exclusive right granted by the federal government to protect properties.

Patents

An exclusive right granted by the federal government to sell or manufacture an invention.

Licensing Rights

Grant limited permission to use a product or service according to specific terms and conditions.

Technology Assets

Software and web development work.

Franchises

Provides legally protected rights to sell products or provide services purchased by a franchise from the franchisor.

Goodwill

Occurs when one company buys another company. It is not amortized. Purchased is considered an intangible asset.

Equation for Goodwill:

purchased

The cost of intangible assets are recorded as assets if they've been .

research and development expenses

If the asset is self constructed, the cost is reported as .

amortized

Intangible assets with unlimited lives are not . Intangible assets with limited lives are capitalized and later .

Depreciation

is a cost allocation process that matches cost of operational assets with periods of its useful life.

Credit Gain

There is IF the cash received is greater than the assets book value.

greater

Gains for intangible assets are the result of amounts received being than their book values.

less

Losses for intangible assets are the result of amounts received being than their book values.

Fixed asset turnover analysis

_ is used to see how well long lived assets were used to generate revenue.

Equation for calculating the average of fixed assets:

Equation for the fixed asset turnover ratio:

great efficiency

A higher fixed asset turnover ratio implies .