🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
HomeClass Notes1,200,000CA670,000

AFM102 Lecture Notes - Lecture 9: Canada Revenue Agency, 6 Years, Dont

21 views3 pages
apricottoad869
15 Oct 2015
School
University of Waterloo
Department
Accounting & Financial Management
Course
AFM102
Professor
Peter Blake

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Components are disclosed separately based on whether they are tangibly different, have different useful lives, or different patterns of use (e. g. land, buildings, machinery and equipment, office equipment: calculating cost. The basic test as to what costs get included or excluded is the following. Any reasonable expense that is incurred to bring an asset to its intended use gets included in the cost of that capital asset(higher income = want to add to cost) Examples of costs that would be included in the cost of a capital asset (in addition to its invoice cost) are: Non-refundable sales taxes (recall gst is usually refundable) Asset additions capitalize and amortize over useful life. Depreciation: the objective is to allocate an asset"s cost to the accounting periods that benefit from its use, i. e. matching the cost of using the assets to the related revenues. Methods: straight-line (cost/number of years) *salvage value, units of production, declining balance, double declining balance.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related Documents

AFM102 Lecture Notes - Hire Purchase, Finance Lease, Office Supplies
turquoiseclam753
AFM102 Chapter Notes - Chapter 13: Net Present Value, Discounted Cash Flow, Capital Budgeting
OC2146671
AFM102 Chapter Notes - Chapter 5: Contribution Margin, Fixed Cost, Variable Cost
greytiger742

Related Questions

Read the 2015 annual report of Air France – KLM and answer the 20 questions asked regarding the accounting issues. Link is provided below:

http://www.airfranceklm.com/sites/default/files/publications/afkl_registration_doc_2015.pdf

1. Air France-KLM reports ‘Consolidated statement of recognized income and expenses’ for the year ended December 31, 2015. If this statement was a U.S. GAAP statement, what would be the title of this statement?

a. Consolidated statement of total net income

b. Consolidated statement of other comprehensive income

c. Consolidated statement of comprehensive income

d. Consolidated statement of recognized net income

2. What method does Air France-KLM use for the Statement of Cash Flows?

a. Indirect method

b. Direct method

c. Gross method

d. Net method

3. The basic and diluted earnings per share for the year ended December 31, 2015, indicates that Air France-KLM has:

a. no convertible debts.

b. some dilutive securities.

c. no preferred stocks.

d. some treasury stocks.

4. What method is used to account for investments in companies over which Air France-KLM can ‘exercise significant influence on financial and operating policy decisions?’

a. Cost method

b. Liability method

c. Equity method

d. Fair value method

5. Sale of passenger tickets is accounted for at the time of ticket sale as:

a. Sales revenue

b. Deferred revenue

c. Contingent asset

d. No recognition

6. How does Air France account for business combination costs other than those related to the issuance of debt or equity securities?

a. Expensed as incurred

b. Capitalized as incurred

c. Included in goodwill

d. Used to offset fair value of the acquisition

7. Which of the following is not an ‘accumulated other comprehensive income’ item among those reported in the ‘reserves and retained earnings’ in the 2015 consolidated balance sheet of Air France-KLM?

a. Available for sale securities reserves.

b. Derivatives reserves.

c. Legal reserves.

d. Pension defined benefits reserves.

8. What is the carrying amount of investments in debt and equity securities that are classified as available-for-sale?

a. Fair value Cost

b. Amortized cost

c. Lower of cost or market

9. Inventories are carried at:

a. The lower of the first-in-first-out cost or net realizable value.

b. The first-in-first-out cost.

c. The lower of the weighted-average cost or net realizable value.

d. The weighted-average cost.

10. Air France-KLM classifies its frequent flyer programs as:

a. Noncurrent liability

b. Current liability

c. Current asset

d. Other debt

11. The followings are included in Air France-KLM’s intangible assets, except for:

a. Trademarks

b. Leased aircraft

c. Customer relationships

d. Slots for takeoff and landing

12. Air France-KLM reports bank overdrafts as:

a. A contra account to cash and cash equivalents.

b. A current liability.

c. An expense.

d. A bank deposits in transit.

13. Which method does Air France-KLM use to record depreciation expense for its flight equipment?

a. The activity-based method.

b. The sum-of-years’-digit method.

c. The straight-line method.

d. The group method.

14. Which accounting standards does Air France-KLM use?

a. U.S. GAAP

b. French GAAP

c. Netherlands GAAP

d. International Financial Reporting Standards

15. As of December 31, 2015, what assets are held for sale?

a. Land

b. Aircraft

c. Equipment

d. Buildings

16. Which of the following is included in ‘income from operating activities’ but not in ‘income from current operations?

a. Sale of aircraft equipment

b. Research and development costs

c. Bad debt expense

d. Interest revenue

17. Which of the following is not true about accounting treatment for the overhaul cost of major airframe and engine?

a. The cost is treated as separate asset component.

b. The cost is capitalized.

c. The cost is depreciated over the remaining useful life.

d. The cost is expensed as incurred.

18. How are financial assets accounted for if the Air France-KLM intends to sell them in the near future to realize capital gains?

a. At fair value with fair value changes recognized in the current period profit and loss

b. At fair value with fair value changes recognized as other comprehensive income

c. At cost with no recognition of fair value changes

d. At amortized cost with no recognition of fair value changes

19. Which of the following is not true about impairment test?

a. Tangible fixed assets, intangible assets, goodwill, and other assets with indefinite useful life are subject to an impairment test.

b. The impairment test is done at least once a year.

c. Recoverable value is the lower of the net realizable value and value in use.

d. The value in use is determined according to the discounted future cash flow method.

20. Which of the following is not an ‘other non-current income and expenses’ item?

a. Restructuring costs

b. Gains and losses on disposal of shares available for sale

c. Gains and losses on disposal of subsidiaries and affiliates

d. Gains and losses on sale of trading securities

Plant Asset Accumulated
Depreciation
Land $ 400,000 $ 0
Landimprovements 195,000 55,000
Building 1,600,000 400,000
Machinery andequipment 1,258,000 455,000
Automobiles 160,000 117,000
Transactions during 2013 were asfollows:
a.

On January 2, 2013, machinery and equipment were purchased at atotal invoice cost of $310,000, which included a $6,500 charge forfreight. Installation costs of $37,000 were incurred.
b.

On March 31, 2013, a machine purchased for $68,000 in 2009 wassold for $41,500. Depreciation recorded through the date of saletotaled $28,900.
c.

On May 1, 2013, expenditures of $60,000 were made to repaveparking lots at Pell's plant location. The work was necessitated bydamage caused by severe winter weather.
d.

On November 1, 2013, Pell acquired a tract of land with anexisting building in exchange for 10,000 shares of Pell's commonstock that had a market price of $48 per share. Pell paid legalfees and title insurance totaling $28,000. Shortly afteracquisition, the building was razed at a cost of $45,000 inanticipation of new building construction in 2014.
e.

On December 31, 2013, Pell purchased a new automobile for$17,750 cash and trade-in of an old automobile purchased for$23,000 in 2009. Depreciation on the old automobile recordedthrough December 31, 2013, totaled $17,250. The fair value of theold automobile was $4,250.
Required:

For each asset classification, prepare a schedule showingdepreciation expense for the year ended December 31, 2013, usingthe following depreciation methods and useful lives:

Land improvements—Straight line;15 years.
Building—150% declining balance;20 years.
Machinery and equipment—Straightline; 10 years.
Automobiles—150% decliningbalance; 3 years.

Depreciation is computed to the nearest month and noresidual values are used. (Do not round intermediatecalculations.)

I am having issues coming up with the correct amount forMachinery and equipment below. Please help. I posted this questionpreviously and got a response of "152508.3" for theMachinery and equipment and it was not correct. Thank You!

Here are the numbers I came up with. Missing the Machinery andequipment cost.

PELL CORPORATION

Depreciation Expense For the Year Ended December 31, 2013
Land Improvements =$13,000
Building = 90,000
Machinery and equipment = ???
|Automobiles =21,500

Total depreciation expense for 2013 =

Take a look at and read this article that discusses the cost of capital. What are your thoughts? Elaborate and Explain

Capital for a small business is simply money. It is the financing for the small business or the money used to operate and buy assets. Cost of capital is the cost of obtaining that money or financing for the small business. The cost of capital is also called the hurdle rate.

Should very small businesses even worry about their cost of capital? The answer to that is absolutely yes! Even very small businesses need money to operate and that money is going to cost something. Companies want that cost to be as low as possible.

What is Capital?

Capital is the money businesses use for financing their operations. The cost of capital is simply the rent, or interest rate, it costs the business to obtain financing. In order to understand cost of capital, you must first understand the concept of capital. Capital for very small businesses may just be the supplier credit they rely on. For larger businesses, capital may be the supplier credit and longer term debt or liabilities, which are the firm's liabilities.

If a company is public or takes on investors, then capital will also include equity capital or common stock. Other equity accounts will be retained earnings, paid-in capital, perhaps preferred stock.

Why is Capital Important?

In order to build new plants, buy new equipment, develop new products, and upgrade informationtechnology, businesses have to have money or capital. For every decision like this, a business owner or Chief Financial Officer (CFO) has to decide if the return on the investment is greater than the cost of capital or the cost of the money it takes to invest in the project.

Business owners do not usually invest in new projects unless the return on the capital they invest in these projects is greater than or at least equal to the cost of the capital they have to use to finance these projects. Cost of capital is the key to all business decisions.

What is the Cost of Capital?

A company's cost of capital is simply the cost of money the company uses for financing. If a company only uses current liabilities and long-term debt to finance its operations, then it uses debt and the cost of capital is usually the interest rate on that debt.

If a company is public and has investors, then cost of capital gets more complicated. If the company only uses funds provided by investors, then the cost of capital is the cost of equity. Usually, this type of company has debt but it also finances with equity financing or money that investors supply. In this case, the cost of capital is the cost of debt and the cost of equity.

The combination of debt and equity financing for a company is the company's capital structure.

What is Return on Capital?

Return on capital is the amount of profit you earn out of a business or project as compared to the amount of capital you invested. The key to cost of capital for a company is that a company's return on capital must always equal or exceed the cost of capital for any project in which the firm wants to invest. In other words, the company's investment rate of return (return on capital) must equal or exceed their financing rate of return (cost of capital) in order for the firm to be profitable.

What Composes the Cost of Capital

One component of the cost of capital is the cost of debt financing. For larger businesses, debt usually means large loans or bonds. For very small companies, the debt can mean trade credit. For either, the cost of debt is the interest rate the company pays on debt.

Another component of the cost of capital is the cost of equity financing if your company is a public company; in other words, if you have investors in your company who provide money in exchange for an ownership stake in the company.

There are several components of the cost of equity capital. First, there is the cost of retained earnings or the money that the company invests back into the company, instead of paying outdividends. Next, there is the cost of new common stock or stock that the company issues to raise money. Last, the company may even issue preferred stock to raise money.

For very small firms, the cost of capital may be much simpler. There are advantages and disadvantages to both debt and equity financing, including cost, that any business owner must consider before adding them to the capital structure of the company. Very small firms may just useshort term debt, in which case we have to establish a cost for this capital component.

The Company's Weighted Average Cost of Capital

Once the business owner understands the concepts of capital and cost of capital, the next step is to understand weighted average cost of capital. Each capital component is a certain percentage of the company's capital structure. In order to arrive at the true cost of capital for a business firm, the owner must multiply the percentage of the company's capital structure for each component by the cost of that component and sum them.

Summary of Cost of Capital

Before a company can engage in buying assets or obtaining financing for its operations, it must make some determination of its cost of capital -- what it really costs the firm for the money it has to have to for all its financing. That cost of financing must never exceed its return on capital. Here is a cost of capital video series that you may find helpful. It helps put the return on capital and cost of capital in real world terms for you.