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Lecture Financial accounting: Chapter 8 - Robert Libby, Patricia A. Libby, Daniel G. Short

Chapter 8 - Reporting and interpreting property, plant, and equipment; natural resources; and intangibles. After studying this chapter, you should be able to: Define, classify, and explain the nature of long-lived productive assets and interpret the fixed asset turnover ratio; apply the cost principle to measure the acquisition and maintenance of property, plant, and equipment; apply various cost allocation methods as assets are held and used over time;. | Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles Chapter 8 Chapter 8: Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles Tangible Physical Substance Intangible No Physical Substance Classifying Long-Lived Assets Land Assets subject to depreciation Buildings and equipment Furniture and fixtures Natural resource assets subject to depletion Mineral deposits and timber Definite life Patents Copyrights Franchises Indefinite life Trademarks Goodwill There are three major categories of tangible assets. The first is land which is not depreciated. Next are assets that are subject to depreciation such as building, equipment, furniture and fixtures. Depreciation allocates the cost of a long-lived asset over the periods benefited by its use. We will study depreciation in detail later in the chapter. The third category is natural resources that are acquired for extraction of valuable raw materials that will be used in the business. Examples include oil reserves, timber, and other minerals. Natural resources are subject to depletion, a process similar to depreciation. We will review the accounting issues related to all three of these categories in this chapter. Intangible assets are noncurrent assets without physical substance. They have value represented by rights that produce benefits. Patents, copyrights, trademarks, franchises and goodwill are examples of intangible assets. We will take a look at each of these later in the chapter. Intangibles with a definite life, such as patents and copyrights, are subject to amortization. Intangibles with an indefinite life, such as goodwill and trademarks, are not amortized. Amortization, similar to depreciation, is a process of allocating cost over an asset’s useful life. Measuring and Recording Acquisition Cost Acquisition cost includes the purchase price and all expenditures needed to prepare the asset for its intended use. Acquisition . | Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles Chapter 8 Chapter 8: Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles Tangible Physical Substance Intangible No Physical Substance Classifying Long-Lived Assets Land Assets subject to depreciation Buildings and equipment Furniture and fixtures Natural resource assets subject to depletion Mineral deposits and timber Definite life Patents Copyrights Franchises Indefinite life Trademarks Goodwill There are three major categories of tangible assets. The first is land which is not depreciated. Next are assets that are subject to depreciation such as building, equipment, furniture and fixtures. Depreciation allocates the cost of a long-lived asset over the periods benefited by its use. We will study depreciation in detail later in the chapter. The third category is natural resources that are acquired for extraction of valuable raw materials that