Textbook Notes (363,693)
Canada (158,533)
York University (12,375)
ADMS 2500 (62)

ADMS 2500 Module 10- Capital Assets.docx

6 Pages
Unlock Document

Administrative Studies
ADMS 2500
Brian Gaber

ADMS 2500 Nov.04/2011 Module 10- Capital Assets Capital Assets - long lived assets used by a company to help produce product and contribute to the revenue generating process - fall into three major categories: ~ property, plant and equipment ~ intangible assets ~ long lived assets held for sale - there are many measurement and financial statement presentation issues: ~ identifying the types and amounts of expenditures that make up the acquisition cost ~ differentiating subsequent expenditures for simple maintenance (expense) from expenditures that increase the capacity or extend the life of the asset (added to asset) during asset use period ~ amortizing (depreciating) the costs related to the use of long-lived assets on a systematic, rational basis against the revenue they help generate, so that periodic net income is determined correctly ~ testing for impairment when the carrying amount of a long lived asset exceeds its fair value ~ recognizing gains or losses at (1) the time of asset disposition or (2) when impairment is identified , or (3) when asset is reclassification as property, plant and equipment to be disposed of by sale Property, Plant and Equipment Held for Use - physical substance—land, building, tools, equipment, furniture, vehicle - some property, plant and equipment acquired for the use in production or supply of goods/services - some acquired to help in the administration of the business or to be used to build, maintain, and repair other property, plant and equipment assets - natural resource properties (mines, oil wells, timber tracts etc.) are still considered properties - management’s intentions when this type of asset is acquired, constructed or developed is to use it in the business - when management acquires tangible assets with the intention of selling them to make profit, the assets are called inventory - intent at the time the assets are initially acquired is to use them, not sell Intangible Assets - lack of physical substance - contribution is significant for long time revenue generating process - not financial assets Property, Plant and Equipment Held for Sale - as long as intention is for use, exchange for another asset, or ignore it, it’s classified as property, plant and equipment for use - classification and account change if intent is it sell - held for sale is valued at the lower of its carrying amount or fair value less cost to sell and is not amortized - held for use can be reclassified as held for sale and must follow: ~ management…commits to plan to sell ~ it is available for immediate sale ~ an active program to locate a buyer…*has+ been initiated ~ the sale is probable and is expected…*to be+ completed within one year ~ it is being actively marketed for sale at a price that is reasonable Initial Recognition and Measurement at the Time of Acquisition - measurement is one of the biggest challenges - all costs incurred to get asset into location and condition necessary for its intended use occur in a series of transactions: ~ cost of a piece of equipment will be the sum of the entries in its account to recognize the invoice price (less any discount), transportation costs, installation charges, testing costs, and any other costs incurred before the equipment is ready for use ~ land costs will include the purchase price, commissions, legal fees, and the cost of removing unwanted buildings ~ natural resources transactions might include cost of acquired material rights and the costs associated with exploration for and development of mineral reserves ~ costs incurred specifically identified intangible asset often include lawyer’s fees and registration fees, unless the future benefits cannot be quantified with a sufficient degree of precision, in which case the costs are expensed - most firms buy items that last long, but doing a depreciation transaction doesn’t have a purpose - that’s why expensing them as expenditures at the time of purchase is more efficient Some Special Acquisition Issues Subsequent Expenditures - must consider some level of repairs and maintenance - costs of periodic upkeep—lubrication, cleaning, replacement of small parts and annual franchise fees are all required to keep the life and usefulness of an asset ~ as incurred are charged to an expense account - subsequent expenditures that enhance service of potential assets are called betterments - any expenditure that extends the useful life, lowers operating costs or improves quality/quantity of output is betterment and increases the book value of the asset - can also increase book value of intangibles Amortization - allocate the cost of limited life capital assets as a charge against operations over the several accounting periods of benefit, called amortization (depreciation) - for income determination it’s important to charge the appropriate amounts against yearly revenue to reflect the asset’s consumption during the use period of a limited-life asset ~ failure would result in overstatement of income for these periods Methods of Amortization: Property, Plant and Equipment - after amortization amount, book value (cost less a
More Less

Related notes for ADMS 2500

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.