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Chapter 9 - Accounting.docx

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Justin Smith

Chapter 9 Reporting and Interpreting Property Plant and Equipment Natural Resources and Intangibles Understanding The Businessinsufficient capacity results in lost salescostly excess capacity reduces profits Classifying LongLived Assets longlived or longterm or capital assets are tangible or intangible resources owned by a business and used in its operations to produce benefits over several years Actively used in operations oExpected to benefit future periods Tangible physical substanceIntangible no physical substance TangibleLandAssets subject to depreciations oBuildings and equipment oFurniture and fixturesNatural resource assets subject to depletion oMineral deposits and timberIntangibleDefinite LifeoPatentsoCopyrightsoFranchisesIndefinite LifeoTrademarks oGoodwill Fixed Asset Turnover Fixed Asset TurnoverNet Sales RevenueAverage Net Fixed Assets Ratio measures a companys ability to generate sales given an investment in fixed assets Measuring and Recording Acquisition Costacquisition cost net cash equivalent amount paid or to be paid for the assetoincludes purchase price and all expenditures needed to prepare the asset for its intended useodoes not include financing charges and cash discounts interest charges not included in the cost of the asset recorded as interest expenseunless acquisition by construction amount recorded for purchase acquisition costis also called cash equivalent price BuildingsoPurchase priceoRenovation and repair costs
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