BUS 254 Lecture Notes - Capital Cost, Income Tax, Historical Cost
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BUS 254 Full Course Notes
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Capital assets have a life longer than one year and include property, plant and equipment. The income effects related to the purchase of these assets must be recognized over the lifetime of these assets. valuation of capital assets. Historical cost: net book value or amortized cost. Market value two methods: replacement cost, net realizable value. Includes all costs necessary to acquire the asset and get it ready for use. Criteria used to determine which costs to include are based upon materiality criteria, income tax rules and other factors. Separating costs among individual assets in a basket purchase based upon fair market values. Method of allocating the cost to capital assets to the periods in which the benefits from the assets are received. Need to estimate the useful life and residual value of the asset. Original cost estimated residual value = estimated useful life. Original cost estimated residual value = estimated total units of output.