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Chapter 8

Chapter 8

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ACC 110
Brad Mac Master

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 Tangible assets used to Land, building, equipment, equipment produce or supply goods vehicles, computer, or service to customers or furniture and fixtures, used for administrative money spent to find and purpose develop natural resources Intangible assets Capital assets without Patents, copyrights, physical substance trademarks, brand names, computer software, customer lists, broadcast rights, licences, Good will An intangible asset that Goodwill = purchased arises when one business price – fair value of acquires another and pays identifiable asset and more than the fair value of liabilities purchased the net assets 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 - *DE
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