ACCT20200 Chapter Notes - Chapter 7: Intangible Asset, Financial Statement, Income Statement
Ch. 7:Long-Term Assets
● We record a long-term asset at its cost plus all expenditure necessary to get the asset ready for use
● Capitalize: record an expenditure as an asset
● Most capitalized expenditures are expensed over time as the asset is used in company operations.
● Land: represents land a company is using in its operations
○ Capitalized costs include purchasing price, closing cysts, recording fees, taxes, clearing,
filling, leveling the land, etc.
○ If we receive any cash from selling salvaged building materials, we reduce the cost of land
by that amount.
○ Land improvements: improvements to land such as paving, lighting, and landscaping that
unlike the land itself, are subject to depreciation.
○ Buildings: the cost of acquiring a building usually includes realtors commission and legal
fees in addition to the purchase price
○ Equipment: the cost of equipment is the actual purchase price plus all other costs
necessary to prepare the asset for use.
■ Recurring costs such as insurance and taxes are expensed as we incur them
○ Basket purchase: purchase of more than one asset at the same time for one purchase price
■ Price allocated is based on the estimated fair value of each of the individual assets.
■ Sometimes fair values exceed total purchase price
○ Natural resources: assets like oil, natural gas, and timber that we can physically use up or
deplete.
● Intangible assets: long-term assets that lack physical substance, and whose existence is often based
on a legal contract. (patents, trademarks, copyrights, franchises, and goodwill)
○ Many intangible assets are not reported in the balance sheet at their estimated values
● Acquiring intangible assets: external purchases from other companies or internal development of
said assets via a protective patent.
● IA are recorded at their original cost plus all other costs, such as legal fees, necessary to get the
asset ready to use.
○ Patent: an exclusive right to manufacture a product or to use a process
■ Purchase of a patent: record it as an intangible assets at its purchase price + other
fees to secure the patent
○ Copyright: an exclusive right of protecting given by the state to the creator of a published
work.
■ Life of creator + 70 years
