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Lecture 1

COMMERCE 1AA3 Lecture Notes - Lecture 1: Mulch, Capital Asset, Current Asset

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Emad Mohammad

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Thursday, November 2, 2017
Chapter 6 - Lecture 1
-If the future benefits of the expenditure are long-term: a capital asset (such as cars)!
-If the future benefits of the expenditure are short-term: a current asset (such as
inventory and supplies)!
-If the benefits are immediate: an expense (such as advertising, rent, wages, etc…) !
Long-Lived Assets:
-Assets that are actively used in operations to generate future benefits beyond one
-Can be classified into tangible and intangible assets!
-The proceeds from the sale of scrap !
-Builder turned the trees into mulch and sold it!
-Such proceeds are not classified as sales revenues; rather they are a reduction in the
cost of land.
Basket Purchases:
-Basket purchases do not specify the prices of individual assets in the basket. !
-Ex. When you buy a house, you also own the land. When you purchases the house,
it doesn’t break down the costs of the dierent assets. In accounting, when you buy
a house with land, you must separate the cost of the house from the cost of the
land, because the house is subject to depreciation, and land is not subject to
depreciation. !
Allocation of Acquisition Cost:
-The allocation of acquisition cost to assets is based on the market value of these
assets. !
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