ACC 110 Chapter Notes - Chapter 8: Intangible Asset, Capital Asset, Book Value

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Published on 1 Dec 2011
Department
Course
Chapter 8 – Capital Asset
Capital Assets: Resources that contribute to earning revenue over more then one
period by helping an entity produce, supple, support or make available the goods or
services it offers to its customer. Capital assets are not bought and sold in the
ordinary course of business.
Definition Examples
Property, plant and
equipment
Tangible assets used to
produce or supply goods
or service to customers or
used for administrative
purpose
Land, building, equipment,
vehicles, computer,
furniture and fixtures,
money spent to find and
develop natural resources
Intangible assets Capital assets without
physical substance
Patents, copyrights,
trademarks, brand names,
computer software,
customer lists, broadcast
rights, licences,
Good will An intangible asset that
arises when one business
acquires another and pays
more than the fair value of
the net assets purchased
Goodwill = purchased
price – fair value of
identifiable asset and
liabilities purchased
Tangible Asset: A capital asset with physical form/substance such as land,
building, equipment, etc.
Intangible asset: A capital asset that does not have physical form/substances
Capital Asset Valuation and ways to increase capital asset:
Historical Cost Original cost of the asset
Net realizable value (NRV) Estimated selling price of an asset after
deducting selling cost
Replacement Cost Estimated cost of replacing an asset
Value in use Net present value of the cash flows the
asset will generate or save over its life
Amortization: A process of allocating the amortizable a long-lived asset as an
expense or charging to income over the asset’s estimated useful life (EUL) in a
rational and systematic way
Depreciation: IFRS use this term and is the process of allocating the cost of
property, plant, and equipment to expense and amortization for intangible asset.
Depletion used for natural resources.
Residual value: The amount that would be received today from selling the asset if
it was at the end of its useful life and should be depreciated or amortized over its
use life.
- Reflects the usage being made of asset (utilization of economic value of
asset)
- Related accounting principle: match costs to revenue
- Amortize/allocate only the “amortizable cost” (“cost” less estimated residual
or salvage value)
- Not valuation or a method of saving cash for asset replacement
Depreciation and market values: used to allocate the cost of a capital asset to
expense. The carrying of the asset (cost less depreciation to date) isn’t an estimate
of its market value
- *DEPRECIATION EXPENSE HAS NO EFFECT ON CASH FLOW!
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