Lecture 02 - January 14.docx

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Western University
Business Administration
Business Administration 2257
Baldwin Wallace

Clicker questions Not a financial statement assumption: non-arm’s length Accounting equation: assets = liabilities + owner’s equity Opening R/E +Net Income - Dividends = Closing R/E (Retained Earnings) Capital assets Things like cars, books, planes, buildings. We don’t intend to convert these to cash in a year – they indirectly contribute We recognise them at the cost it took to acquire them (can be more than the sticker price – land costs $10, but you also have to pay taxes and other costs) You have to look at how long it’s going to be an asset – the amount of time before you start spending more money fixing it than it brings in (Look at other public companies to get an idea) Set these things up by class – we estimate useful life based on this We estimate buildings to be good for 40 years LAND DOES NOT DEPRECIATE Assets that contribute to earning revenue over more than one period (indirectly contribute) Can be tangible or intangible Plan, equipment, computers, furniture Patents, trademarks, brands, goodwill Not all capital assets appear on the balance sheet Human capital/knowledge assets Most classes have a limited life Match costs of assets to revenues generated Depreciation, depletion and amortization Capital (betterment) versus revenue (expense) items) Timberland: depletes – it doesn’t count as inventory until the trees have been cut down and processed. You deplete the asset of the land, but you don’t depreciate the land itself Brands/trademarks: You’re bringing into expense over a period of time to recognise you’re using those up. These are amortised (goodwill is not). Goodwill: intangible asset Asset: provides us with an economic benefit Current assets: Things we can turn into cash in a year (cash, inventory, prepaid expense) Matching principle: recognise expenses and revenue brought about by those expenses in the same period Depreciation Straight line Accelerated Declining balance Double declining balance Unit of production Recording acquisition and depreciation E8-3 (p 383) A: Straight line: Annual depreciation of $21,600 (DR depreciation expense 21600, CR accumulated depreciation 21600 Y1: 21600, 21600, 98400 (this year, accumulated, net balance value) Y2: 21600, 43200, 76800 (this year, accumulated, net balance value) Straight line is the same every year – just keep adding to the year before for accumulated A: Units of production: Cost per unit (start value – residual value/number of units produced) Figure out each year’s depreciation based on that 2008: 7200 2009: 14400 Last year: 36000 E8-4 (p838) A: Double declining balance If we are asked to used accelerated double declining balance, we will be given the % 12000 until 5 years where 1200 at 40% Y1: 4800 (12000 – this = new book value – use in next equation, etc.) Y2: 2880 Y3: 1728 Y4: Y5: only take what reduces down to the residual value (1200) You get the most worth out of each thing in the early years of its life Figure this out later to make sure you can do it Units of production Equipment used to produce something (trucks moving things) Find the cost per unit and figure out deprecation based on the number of units produced each year Molson Coors On the balance sheet Properties, less accumulated depreciation of $1021.2 and $926.5 respectively Dec 31 2011: $1430.1 Dec 25 2010: $1488.7 They run on a 52 week schedule, not 365 days Significant accounting policy: properties are stated at original cost, less accumulated depreciation. Depreciation is recorded on a straight line basis over the estimated useful lives of the assets. Cost of enhancements or modifications that extend the capacity or useful life of an asset are capitalised and depreciated accordingly. Ordinary repairs and maintenance are expensed as incurred. Returnable containers are recorded at acquisition cost and are classified within properties. The deposits received on those containers in the market are recorded as deposit liabilities, included as current liabilities within accrued expenses and other liabilities in the consolidated balance sheets. Intangibles Patents, trademarks, brands, goodwill Some intangibles are not treated as asset Expensed as incurred – e.g. research costs Goodwill is a unique capital asset Is a calculation (plug) determined at the time of acquisition of one company by another Is not amortised May be written down (i.e. value reduced) if decided there has been an impairment in value Requires use of judgement and assumptions Molson Coors Dec 31 2011 Dec 25 2010 Goodwill 1453.3 1489.1 Other intang fjdaskljgkladsgdsjlkgjasl Goodwill = purchase price – fair value of (identitifible assets purchased – liabilities assumed) Example – Molson-Coors – Feb 2005 Paid: 3,600.0 million Current Assets 486.6 Capital Assets 1012.3 Intangibles 3740.4 Other Assets 489.6 Total Assets 5728.9 Total Liabilities 3989.2 Goodwill = 3600.0 – (5728.9 – 3989.2) = 1860.3 At time of transaction 1816.8 allocated to Goodwill. In 2006, Goodwill written down by $23,295000 to reflect impairment in value I have ONE essay :D It’s the marketing one. And then just stats/accounting math, really. Yea, I’ve been doing an hour of school work a day, at least and I’ve gotten started on almost all of my assignments so far. It’s been so nice. I’ve been reading books and having free time. I actually have moments where I’m like “I worked on this this this this AND this. I HAVE NO MORE THINGS” I don’t understand. ,I can’t sleep past 10. Yea, same. I mean, I can stay in bed almost all day.. .provided I have a book or something xD I arted on wine bottles :D I found a purpose for them other than harbouring icky substances xD My cousin said the Starbucks on her campus doesn’t calculate cost properly so instead of paying four or five dollars, she pays 2 or 3 He’s getting a lot more relaxed around me again. Makes a cuddly bunny. Bunny cuddles. Bunny cuddles. Bunny cuddles. Nerd
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