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Business Administration
Business Administration 2257
Jason Dean

CHAPTER 9 – REPORTING AND INTERPRETING PROPERTY, PLANT, AND EQUIPMENT; NATURAL RESOURCES; AND INTANGIBLES WESTJET AIRLINES Long-term asset: Also long-lived assets or capital assets. Tangible and intangible resources owned by a business and used in its operations over several years. 1. Tangible assets. Physical substance. Property, plant and equipment. Three kinds: a. Land. If it has material value  separate item on balance sheet. Never amortized. b. Buildings, fixtures, and equipment. Reported as separate item on balance sheet/in notes. c. Natural resources. 2. Intangible assets. No physical substance. Often arise from intellectual effort and are known as intellectual property. Ex: copyrights, patents, software, franchises. Fixed asset turnover ratio  used for answering the question: how effectively is management utilizing its property, plant and equipment or fixed assets to generate revenue? High rate usually = effective management. Fixed asset turnover = Net sales (or operating revenue) Average Net Fixed Assets Costs are capitalized when they are recorded as assets instead of as expenses in the current period. Acquisition cost: Net cash equivalent amount paid or to be paid for the asset. Acquisition methods: • For cash • For debt • For equity • By construction • As a basket purchase of assets Capitalized interest: Represents interest on borrowed funds directly attributable to construction until the asset is substantially complete. Basket purchase: An acquisition of two or more assets in a single transaction for a single lump sum. Expenditures made after an asset is acquired: 1. Ordinary repairs and maintenance: • Expenditures for normal operating upkeep of long-term assets. • Recorded as an expense. • These are revenue expenditures: maintain the productive capacity of the asset during the current accounting period only and are recorded as expenses. 2. Extraordinary repairs and betterments: • Infrequent expenditures that increase the asset’s economic usefulness in the future. • These are capital exp
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