Assets Liabilities Shareholder’s Equity
A +10,000,00 NE +10,000,000
B +300,000,000 +300,000,000 NE
C -50,000,000 NE NE
+50,000,000
D +75,000,000 +120,000,000 NE
+45,000,000
E NE NE NE
F -5,000,000 NE -5,000,000
G NE NE NE
H +7,800,000 NE +1,900,000
-5,900,000
I NE NE NE
J +40,000,000 -20,000,000 +60,000,000
K NE +10,500,000 -10,500,00
L
I= P x R x T
Consider a timeline
Loan for 100million on July 1, interest for loan is due in a year
In 6 months (Dec 1), we have to calculate the interest and include it in the sheets
I = 100mill x 10% x 6/12 = 5 million
We record Interest Expense – 5M, Interest Payable +5M
In 12 months, we pay the interest
Interest Payable +5M
Cash -10M
Interest Expense -5M
ARBUS 102: MID-TERM 2 REVIEW
30 multiple choice questions
3 short answer questions (55 marks)
= 85 marks
- Ratio formula sheet is provided, amortization formula are not provided
- Calculator is allowed
Amortization of Tangible Assets
- Be able to apply the three amortization methods to calculate the amortization of any long-lived
tangible assets
- Asset cost: includes the purchase cost, sales tax, legal fees, and other costs needed to acquire
and prepare the asset for use
- Residual (salvage) value: is an estimate of the amount the company will receive when it disposes
of the asset
- Useful life: is the expected service life of an asset to the present owner. Land is the only tangible
asset that has an unlimited useful life - Amortizable cost: is the portion of the asset’s cost that will be used in generating revenue;
calculated as asset cost minus residual value
1. Straight-Line Method: a systematic and rational allocation of the cost of the asset in equal
periodic amounts over its useful life
(cost – residual value) x = amortization expense
o Amortization expense is constant each year
o Accumulated amortization increases by an equal amount each year
o Book value decreases by the same equal amount each year
2. Units of Production Method: allocates the cost of an asset based on the relationship of its
periodic output to its total estimated output
(cost – residual value) x = amortization expense
o Amortization expense, accumulated amortization, and book value vary from period to
period, depending on the number of units produced
3. Declining- Balance Method: assigns more amortization to early years of an asset’s life and less
amortization to later years
(cost – accumulated amortization) x = amortization expense
o Amortization expense is higher in the early years of an asset’s life
o Usually used for products that lose value quickly (eg. technology)
o The calculated amortization expense would not be recorded if the book value would fall
below the residual value.
Application: Consider Example E9-7 (p397)
Income Balance Sheet
Statement
Year Computation Amortization Cost Accumulated Book Value
Expense Amortization
Straight Line Method
At acquisition - -
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