ACC 210 Lecture Notes - Lecture 7: Accelerated Depreciation, Profit Margin, Asset Turnover
Chapter 7 notes
• Tangible Assets
o Land
o Land improvements
o Buildings
o Equipment
o Natural Resources
• Intangible Assets
o Patents
o Trademarks
o Copyrights
o Franchises
o Goodwill
o Lack of physical substance
▪ Existence based on a legal contract
o Acquired in 2 ways
▪ Purchase from others
• Recorded at their original cost plus all other costs
o Legal and filing fees, necessary to get the asset
ready for use
▪ Create internally
• Most of the costs are expensed to the income
statement as they are incurred
• Property Plant and Equipment
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2
o Capitalize
▪ Recording an expenditure of cash as an asset (not an
expense)
o Assets are recorded at
▪ Cost of asset + all expenditures necessary to get it ready
for use
• Land and Land Improvements
o Land
▪ Used for operations (factory sites, retail operations,
corporate HQ)
o Land Improvements
▪ Parking lots, sidewalks, driveways
o Costs to capitalize will include purchase price and other
acquisition costs
▪ Real estate commissions, title fees, land clearing
o Current year taxes are not capitalized
▪ Expenses
o Depreciation is the allocation of the cost of a tangible asset over
its service life
▪ Land is an asset (do not depreciate) bc life is indefinite
▪ Do depreciate land improvements
o Buildings
▪ Administrative offices, retail stores, manufacturing
facilities, storage warehouses
• Costs to capitalize in the buildings account include
o Purchase price, commissions paid,
architectural fees, remodeling fees
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3
o Equipment
▪ Machinery used in manufacturing, computers and other
office equipment
▪ Costs to capitalize will likely include purchase price, sales
taxes, shipping and delivery fees, installation costs
▪ Recurring costs are not part of preparing the equipment
for use so not capitalized in the equipment account
• Insurance, vehicle taxes, normal maintenance costs
• Basket Purchases
o Purchase of more than one asset for one purchase price
o Allocate total purchase price based on estimated individual fair
values
• Natural resources
o Oil, natural gas, timber, coal
o Physically use up or deplete
▪ Depletion: allocation of the cost of a natural resource over
its service life
o Identical to the activity based method of recording depreciation
• Patent
o Exclusive right to manufacture a product or to use a process
▪ Right for 20 years
o When a firm purchases a patent it records the patent at its
purchase price + other costs such as legal and filing fees to
secure the patent
o When a firm develops a patent internally, it expenses the
research and development costs as it incurs them
o Any legal and filing fees to get the patent are capitalized
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