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Lecture Survey of accounting (4/e) - Chapter 6: Accounting for long-term operational assets

In this chapter, you will be able to: Identify different types of long-term operational assets, determine the cost of long-term operational assets, explain how different depreciation methods affect financial statements,. | Chapter Six Accounting for Long-Term Operational Assets © 2015 McGraw-Hill Education. 1 Intangible Assets Intangible Assets with Identifiable Useful Lives – These intangibles include patents and copyrights. We amortize the cost of each over its useful life. Intangible Assets with Indefinite Useful Lives - These intangibles include renewable franchises, trademarks, and goodwill. The cost of these assets is not expensed unless it can be shown that there has been an impairment in value. 6-2 8-2 Cost of Long-Term Assets Buildings – Purchase price, Sales taxes, Title search and transfer document costs, Realtor’s and attorney’s fees, and Remodeling costs. Equipment – Purchase price (less discounts), Sales taxes, Delivery costs, Installation costs, and Costs to adapt to intended use. 6-3 8-3 Cost of Long-Term Assets Land – Purchase price, Sales taxes, Title search and transfer document costs, Realtor’s and attorney’s fees, Costs of removal of old buildings, and Grading costs. 6-4 8-4 Basket | Chapter Six Accounting for Long-Term Operational Assets © 2015 McGraw-Hill Education. 1 Intangible Assets Intangible Assets with Identifiable Useful Lives – These intangibles include patents and copyrights. We amortize the cost of each over its useful life. Intangible Assets with Indefinite Useful Lives - These intangibles include renewable franchises, trademarks, and goodwill. The cost of these assets is not expensed unless it can be shown that there has been an impairment in value. 6-2 8-2 Cost of Long-Term Assets Buildings – Purchase price, Sales taxes, Title search and transfer document costs, Realtor’s and attorney’s fees, and Remodeling costs. Equipment – Purchase price (less discounts), Sales taxes, Delivery costs, Installation costs, and Costs to adapt to intended use. 6-3 8-3 Cost of Long-Term Assets Land – Purchase price, Sales taxes, Title search and transfer document costs, Realtor’s and attorney’s fees, Costs of removal of old buildings, and Grading costs. 6-4 8-4 Basket Purchase Allocation Beatty Company paid $240,000 for land and a building. An independent appraiser provided these fair value estimates: land $90,000, and building $270,000. The $240,000 cost paid is separately assigned based on % of total fair value. 6-5 8-5 Basket Purchase Allocation The land and building that Beatty Company are assigned their own allocation of the $240,000 paid based on the individual % of total fair value. The “Allocation” is the amount recorded in the accounting records. 6-6 8-6 Life Cycle of Operational Assets Acquire Funding Buy Asset Use Asset Retire Asset 6-7 8-7 Depreciation Method Straight-line method - the same amount of depreciation is taken each accounting period. Double-declining-balance – produces more depreciation expense in the early years of an asset’s life, with a declining amount of expense in later years. Units-of-Production – produces varying amounts of depreciation in different accounting periods depending upon the number of units produced. 6-8 .