AFM101 Chapter Notes - Chapter 6: Capital Expenditure, Impaired Asset, Book Value

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OC2146671

15 Nov 2017

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM101

Professor

Sasan Saiy

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AFM101 Full Course Notes

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Land is not expensed because its usefulness does not decrease balance sheet: notes state what is included in this category. Measure and account for the cost of property, plant, and equipment: the cost of any asset is the sum of all the costs incurred to bring the asset to its location and intended use. Includes purchase price, taxes, commissions, other amounts paid to make the asset ready for use: cost of land. If a cost is expensed but should have been capitalized, expenses are overstated and net income is understated. If a cost is capitalized instead of expensed, the error understates expenses and overstates net income. Ifrs directs a business to choose a depreciation method that reflects the pattern in which the asset will be used. First, compute depreciation for a full year assets bought on or before the 15th of a month.

Related Questions

In the blank next to each account, write the letter indicatingto which category of the Classified Balance Sheet it wouldbelong.

A. Current Assets E. Current Liabilities

B. Long-Term Investments F. Long-Term Liabilities

C. Property, Plant, and Equipment G. Stockholdersâ Equity

D. Intangible Assets H. Not on the Balance Sheet

Accumulated Depreciation
Common Stock
Building (used in operations)
Salaries Payable
Land (not used in operations)
Inventory
Unearned Revenue
Depreciation Expense
Dividends
Patents
Prepaid Rent
Mortgage Payable (due 2020)
Salaries Expense
Short-Term Debt investment
Income Tax Payable
Goodwill

erinturtle874

To analyze the financial statements of a publicly tradedcompany

Obtain an annual report from GM (GENERAL MOTORS YEARS 2013-2014)a publicly traded corporation that is interesting to you. Be surethe company has property and equipment, intangible assets, andlong-term debt on its balance sheet. Using techniques you havelearned in the previous weeks, respond to the followingquestions.

1.What is the amount of property and equipment on the balancesheet for the two most recent years? What is the amount ofdepreciation expense? What amounts are on the cash flow statementfor the most recent year that relate to depreciation, gains andsales of property and equipment, and purchases and sale of propertyof equipment? What amounts are permitted for inclusion in thecapitalized cost of property and equipment?

2. Looking at the footnote disclosures of the company, what arethe individual components of property and equipment? For example,what are the amounts for land, building, equipment, accumulateddepreciation, and so forth? How do companies account fornonmonetary exchange and dispositions of property andequipment?

3.Does the company have intangible assets? If so, what are thetypes of intangible assets (patent, copyrights, etc.) and theiramounts? What is the amount of amortization expense? What amountson the most recent cash flow statement relate to the purchase andsale of intangible assets? How do intangible assets differ fromproperty and equipment? What costs do we include in intangibleassets?

4. Does the company have goodwill? What are the footnotedisclosures relating to goodwill and the related acquisition?Please also describe the calculation of goodwill and how we accountfor differences between fair value and book value of assetsacquired.

5. What are the company's depreciation methods? What is therange of estimated useful lives used for depreciating its assets?Does the company use the same depreciation methods for financialstatements and tax returns? If not, please describe the methodsused for tax purposes.

6.What are the company's footnote disclosures relating toimpairment? Please also describe how to determine whether animpairment exists and how to calculate the impairment loss.

7.What are the amounts and descriptions of the company's currentliabilities for the most recent year? Does the company have anycontingent liabilities? If yes, please describe. What are the threecategories of contingent liabilities and the treatment for eachtype? Does the company have any subsequent events disclosed in itsfootnotes? If so, please describe them.

8. What are the amounts and descriptions for all of thecompany's long-term liabilities on its balance sheet for the twomost recent years? What is the interest expense for the two mostrecent years? What amounts are included in the cash flow statementsfor proceeds from issuance of debt and repayment of debt for themost recent year? For each note payable discussed in the footnotesdisclosures, what is the interest rate, total amount borrowed, andmaturity date?

9.Does the company have bonds payable? If so, what are theamounts? Please also describe how bonds payable differ from notespayable and how to account for the issuance of bonds at par, at adiscount, and at a premium. How is the discount and premiumamortized? What is the effective interest method?

10,Does the company have capital leases? If so, what are theamounts and terms of the leases? What are the four criteria for alease to be considered a capital lease? What are the additionalcriteria for the lessor? What is the difference between asales-type lease and a direct financing lease?

coralmammoth759

To analyze the financial statements of a publicly tradedcompany

Obtain an annual report from a publicly traded corporation thatis interesting to you. Be sure the company has property andequipment, intangible assets, and long-term debt on its balancesheet. Using techniques you have learned in the previous weeks,respond to the following questions.

What is the amount of property and equipment on the balancesheet for the two most recent years? What is the amount ofdepreciation expense? What amounts are on the cash flow statementfor the most recent year that relate to depreciation, gains andsales of property and equipment, and purchases and sale of propertyof equipment? What amounts are permitted for inclusion in thecapitalized cost of property and equipment?

Looking at the footnote disclosures of the company, what are theindividual components of property and equipment? For example, whatare the amounts for land, building, equipment, accumulateddepreciation, and so forth? How do companies account fornonmonetary exchange and dispositions of property andequipment?

Does the company have intangible assets? If so, what are thetypes of intangible assets (patent, copyrights, etc.) and theiramounts? What is the amount of amortization expense? What amountson the most recent cash flow statement relate to the purchase andsale of intangible assets? How do intangible assets differ fromproperty and equipment? What costs do we include in intangibleassets?

Does the company have goodwill? What are the footnotedisclosures relating to goodwill and the related acquisition?Please also describe the calculation of goodwill and how we accountfor differences between fair value and book value of assetsacquired.

What are the company's depreciation methods? What is the rangeof estimated useful lives used for depreciating its assets? Doesthe company use the same depreciation methods for financialstatements and tax returns? If not, please describe the methodsused for tax purposes.

What are the company's footnote disclosures relating toimpairment? Please also describe how to determine whether animpairment exists and how to calculate the impairment loss.

What are the amounts and descriptions of the company's currentliabilities for the most recent year? Does the company have anycontingent liabilities? If yes, please describe. What are the threecategories of contingent liabilities and the treatment for eachtype? Does the company have any subsequent events disclosed in itsfootnotes? If so, please describe them.

What are the amounts and descriptions for all of the company'slong-term liabilities on its balance sheet for the two most recentyears? What is the interest expense for the two most recent years?What amounts are included in the cash flow statements for proceedsfrom issuance of debt and repayment of debt for the most recentyear? For each note payable discussed in the footnotes disclosures,what is the interest rate, total amount borrowed, and maturitydate?

Does the company have bonds payable? If so, what are theamounts? Please also describe how bonds payable differ from notespayable and how to account for the issuance of bonds at par, at adiscount, and at a premium. How is the discount and premiumamortized? What is the effective interest method?

Does the company have capital leases? If so, what are theamounts and terms of the leases? What are the four criteria for alease to be considered a capital lease? What are the additionalcriteria for the lessor? What is the difference between asales-type lease and a direct financing lease?

AFM101 Chapter Notes - Chapter 6: Capital Expenditure, Impaired Asset, Book Value

AFM101 Full Course Notes

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