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ACC1100 Lecture Notes - Lecture 9: Finance Lease, Operating Lease, Intangible Asset

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School
Monash University
Department
Business - Accounting
Course
ACC1100
Professor
john gerrand

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Document Summary

Cost = the amount of cash or cash equivalents paid plus the fair value of all expenditures necessary to acquire the asset and make it ready for its intended use. Fair value = the price that would be received to sell an asset or the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. Costs are accumulated until the asset is ready for its intended use. The cost required to clear an area before and after the nca is used is included as part of the. If (cid:449)e e(cid:454)(cid:272)ha(cid:374)ge ou(cid:396) nca fo(cid:396) a(cid:374)othe(cid:396) e(cid:374)tit(cid:455)"s nca, the (cid:272)ost of the received nca will be the fair value of the nca we gave. Additional expenditures on the nca over its life: Capital expenditures = e(cid:454)pe(cid:374)ditu(cid:396)es that i(cid:374)(cid:272)(cid:396)ease the nca"s capacity, efficiency or useful life. These are debited to the asset account (increases the cost of the nca).

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Related Questions

1, The term capitalize means to record an expenditure as an expense. True or False.

2, Cash received from the sale of salvaged materials increase the total recorded cost of the land. T or F

3, Most if the costs associated with internally developed intangible assets are recorded as intangible assets on the balance sheet. T or F

4, Goodwill is recorded as an intangible asset on the balance sheet only when it is purchased as part of the acquisition cost of another company. T or F

5, Book value is equal to the original cost of the asset less the toal balance in accumulated depreciation. T or F

6, Impairment occurs when the future cash flows geerated for a long-term asset fall below its fair value. T or F

7, Circle Co purchased a piece of equipment by paying $10,000 cash. There was a shipping cost of $1,200 and a renovation cost of $3,200 to the building to get the space ready for the installation. There was also an installation cost of $1,000. What should be the recorded cost of this piece of equipment?

FASB SFAS 157 was issued September 2006 for application tofinancial statements issued for fiscal years beginning afterNovember 15, 2007, and interim periods within those fiscal years.This Statement, which applies to assets and liabilities, definesfair value, establishes a framework for measuring fair value ingenerally accepted accounting principles (GAAP), and expandsdisclosures about fair value measurements. The statement does notapply to assets acquired and liabilities assumed in an acquisitionof a business or non-profit activity by a not-for-profit entitythat are required to be measured at fair value under FASB StatementNo. 164. The objective of a fair value measurement is to determinethe price that would be received to sell the asset or paid totransfer the liability at the measurement date which is the exitprice. The fair value measurement assumes that the asset orliability is exchanged in an orderly transaction between marketparticipants. For assets, fair value measurement assumes thehighest and best use of the asset by market participants,considering the use of the asset that is physically possible,legally permissible, and financially feasible at the measurementdate. The highest and best use of the asset establishes thevaluation premise. For liabilities, it is assumed that theliability is transferred to a market participant at the measurementdate and that the nonperformance risk relating to that liability isthe same before and after its transfer. The fair value of theliability shall reflect the nonperformance risk relating to thatliability. As in our text, the position in the statement is thatvaluation techniques must be consistently applied. It emphasizesthose valuation techniques using the market approach, incomeapproach, and cost approach to measure fair value. In some cases asingle valuing technique may serve the purpose, however in others,using multiple techniques may be more appropriate. The informationthat is available will help to determine which method that shouldbe used. Examples are provided in Appendix A to illustrate thevarious approaches for certain transactions. The statement alsoestablishes a fair value hierarchy that prioritizes the inputs tovaluation techniques used to measure fair value by placing theminto three broad levels in order to increase consistency andprovide better comparability. Level 1 is given the highest priorityand is based on quoted prices (unadjusted) in active markets foridentical assets or liabilities that the reporting entity has theability to access at the measurement date. Level 2 is based oninformation other than quoted prices included within Level 1 thatare observable for the asset or liability, either directly orindirectly through substantiation with observable market data.Level 3 has the lowest priority and is based on unobservable inputsfor the asset or liability, primarily, inputs that reflect thereporting entity’s own assumptions.

Follow-Up Discussion Expand upon any of the points identified byyour classmates and/or ask for clarification on points that you donot understand.

I have provided the classmates response.

300 words



1. If a fixed asset with an original cost of $18,000 andaccumulated depreciation of $12,000 is sold for $15,000, thecompany must (Points : 2)
recognize a loss on the income statement under otherexpenses.
recognize a loss on the income statement under operatingexpenses.
recognize a gain on the income statement under otherrevenues.
Gains and losses are not to be recognized upon the sell of fixedassets.


2. If a fixed asset is sold and the book value is less than cashreceived, the company must (Points : 2)
recognize a loss on the income statement under otherexpenses.
recognize a loss on the income statement under operatingexpenses.
recognize a gain on the income statement under otherrevenues.
Gains and losses are not to be recognized upon the sell of fixedassets.


3. Depreciable cost equals (Points : 2)
cost less accumulated depreciation.
book value less residual value.
cost less residual value.
market value less residual value.


4. Goodwill is (Points : 2)
amortized similar to other intangibles.
only written down if an impairment in value occurs.
charged to expense immediately.
amortized over 40 years or its economic life, whichever isshorter.


5. Expenditures that add to the utility of fixed assets for morethan one accounting period are (Points : 2)
committed expenditures.
revenue expenditures.
current expenditures.
capital expenditures.


6. A company purchased an oil well for $25 million with a residualvalue of $500,000. It is estimated that 10 million barrels can beextracted from the well. Determine depletion expense assuming 3million barrels are extracted and sold. (Points : 2)
$7,350,000
$7,500,000
$5,000,000
$7,650,000


7. Book value is defined as (Points : 2)
current market value less residual value.
cost less residual value.
current market value less accumulated depreciation.
cost less accumulated depreciation.


8. Which of the following expenditures would NOT be included in thecost of an asset? (Points : 2)
Freight costs
Vandalism
Sales tax
Surveying fees


9. To measure depreciation, all of the following must be knownEXCEPT (Points : 2)
market value.
residual value.
historical cost.
estimated life.


10. A capital expenditure would appear on the (Points : 2)
income statement under operating expenses.
balance sheet under fixed assets.
balance sheet under current assets.
income statement under other expen