PP&E, Intangibles (Chapter 7)
Asset | Related expense account |
---|---|
Land (freehold) | None |
Land (leasehold) | Depreciation |
Buildings | Depreciation |
Furniture & fixtures | Depreciation |
Machinery | Depreciation |
Vehicles | Depreciation |
Land improvements | Depreciation |
Natural resources | Depletion |
Intangibles (with finite useful lives) | Amortization |
Intangibles (with indefinite useful lives) | None |
PP&E has useful life or extends useful life, whereas expenses do not extend useful life but merely maintain or restore working order. [IAS 16]
PP&E | Typical costs included in asset’s value |
---|---|
Land | Purchase price, commission (to agents), taxes paid, fees (legal, surveying), grading (changing elevation), removing unwanted structures |
Land improvements | Fencing, paving, lighting, security systems, landscaping |
Buildings (constructed) | Architect’s fees, contractors’ fees, materials, labor and overhead, interest on funds borrowed for construction |
Buildings (purchased) | Purchase price, commission (to agents), taxes paid, repair and renovation costs |
Equipment | Purchase price, transport, insurance during transit, sales tax, installation, testing (net of useful products) |
What is the asset value of the following:
Situation: Bought Machinery (MV: $8,000), Land (MV: $10,000), and Equipment (MV: $2,000) for $10,000 in one cash purchase
Determine the value of each item in the following basket purchase for $90,000 cash:
Capitalize repairs only when useful life changes
How much does 1 year affect the value of the following?
Note: Never go below salvage value. Stop depreciating when you hit salvage value
The depreciation method used shall reflect the pattern in which the asset’s future economic benefits are expected to be consumed by an entity. [FRS 16:60]
The method must be used consistently from period to period. [FRS 16:61, 62]
\(Depr = \frac{Cost-Salvage}{\#Periods}\)
You have a $100k asset which you will use for 5 years, with $25,000 salvage value. What is straight-line depreciation in years 1 and 2?
\(Depr = (Cost-Salvage) \frac{Units\ Used}{Total\ Units}\)
You have a $100k asset which you will use for 5 years, with $25,000 salvage value. What is units of production depreciation in years 1 and 2? Usage will be 10%, 30%, 40%, 10%, and 10% for each year.
\(Depr = (Cost - Acc\ Depr)\times P\), \(P=\frac{2}{\#Periods}\)
\(Depr = (Cost - Acc\ Depr)\times P\), \(P=\frac{2}{\#Periods}\)
Steps for calculation:
You have a $100k asset which you will use for 5 years, with $25,000 salvage value. What is double declining balance depreciation in years 1 and 2?
Situation: You have a $100k asset which you will use for 5 years, with $0 salvage value. Determine depreciation using the 3 methods. Usage will be 10%, 30%, 40%, 10%, and 10% for each year.
Situation: You have a $100k asset which you will use for 5 years, with $25,000 salvage value. Determine depreciation using the 3 methods. Usage will be 10%, 30%, 40%, 10%, and 10% for each year.
Situation: Bought an asset on September 30th for $10,000, with useful life of 7 years and $3,000 of salvage value. What is depreciation under straight line and DDB for the asset as of December 31st of the same year?
Situation: Bought an asset on January 1st 20X0 for $10,000, with useful life of 7 years and $3,000 of salvage value, to be accounted for using straight line depreciation. In year 20X2 it was determined that the asset would only last 6 years in total, with 0 salvage value, and should be accounted for using DDB. What is the depreciation expense in years 20X0 through and 20X2?
Asset at 0 net asset value (NAV)
Asset at \(>0\) net asset value
Loss (NAV \(>\) Cash)
Gain (NAV \(<\) Cash)
Loss (NAV \(>\) Asset received)
Gain (NAV \(<\) Asset received)
Situation: A machine bought for $10,000 has $4,000 of accumulated depreciation, but the firm no longer needs the asset. Record the following possible outcomes: 1) Disposal of the machinery; 2) Sale for $4,000 cash; 3) Exchange for an $8,000 Warehouse
The present invention is directed to a process for amplifying any desired specific nucleic acid sequence contained in a nucleic acid or mixture thereof. The process comprises treating separate complementary strands of the nucleic acid with a molar excess of two oligonucleotide primers, and extending the primers to form complementary primer extension products which act as templates for synthesizing the desired nucleic acid sequence. The steps of the reaction may be carried out stepwise or simultaneously and can be repeated as often as desired.
Why do we have this difference? It’s because purchases have more reliable values.
Situation: Coffee Corp bought a rival coffeeshop for $100,000. The coffee shop has book values of assets and liabilities of $80,000 and $40,000, respectively. We estimate NAV to be $90,000. What is goodwill?
Net assets and Net asset value are not the same!
Reworking the prior example: Net assets is \(90k - 40k = 50k\)
Solution:
Note: Technically this account is called “impairment loss,” but it is an expense account despite having loss in the name. Either will be fine for this course.