1、Chapter 9Investments in Property,Plant,and Equipment and in Intangible AssetsAlbrecht,Stice,Stice,Swain1*第1页，共32页。Long-Term Assets Property,plant,and equipment Tangible assets acquired for the use in business operations.Land,buildings,and equipment.Intangible Assets Assets without physical substance
2、 that are used in business.Licenses,patents,franchises,and goodwill.2第2页，共32页。Capital Budgeting Capital budgeting Planning for investment in long-term assets.Long-term assets have value because they help companies generate future cash flows.Involves comparing the cost of the asset to the value of th
3、e expected cash flows,after adjusting for the time value of money.Time value of money The concept that a dollar today is worth more than a dollar received in the future.3第3页，共32页。Asset Acquisition Include purchase price.Include costs incurred to acquire the asset and getting it ready for its intende
4、d use.Sales tax,shipping,installation,and other costs.Fork Lift.12,500Cash.3,500Notes Payable.9,000Purchased a fork lift for$12,000 and paid$500 for shipping;paid$3,500 cash and issued a note for$9,000 to the bank.4第4页，共32页。Leases Lease A contract that specifies the terms under which the owner of an
5、 asset(the lessor)agrees to transfer the right to use the asset to another party(the lessee).What terms should be included in a lease?Term Payment amount Due dates5第5页，共32页。Match Lease TermsThe party that is granted the right to use the property under the terms of a lease.LesseeLessorOperating Lease
6、Capital LeaseThe owner of property that is leased(rented)to another party.A simple rental agreement.A leasing transaction that is recorded as a purchase by the lessee.6第6页，共32页。Classifying LeasesA lease is classified as a capital lease if it is non-cancelable and meets one of the following criteria:
7、Lease transfers ownership of the asset.Lease contains a bargain purchase option.Lease term is equal to 75%or more of the estimated life of the asset.1.Present value of the lease payments is equal to 90%or more of the fair market value of the asset.7第7页，共32页。Operating LeaseDahl&Sons,Attorneys at Law,
8、leases a building with monthly rental payments of$1,000.Make the appropriate entry if rent is paid in cash the first month.Rent(or Lease)Expense.1,000 Cash.1,000To record monthly rent of storage building.8第8页，共32页。Capital LeaseDahl&Sons enters into a non-cancelable lease agreement that requires leas
9、e payments of$100,000 a year for 20 years.At the end of 20 years,Dahl&Sons will own the property.The present value of the lease payments at a 10%discount rate is$851,360.Make the appropriate entries.Leased Property.851,360Lease Liability.851,360To record commercial building acquired under a 20-year
10、non-cancelable lease.Lease Liability.14,864 Interest Expense.85,136 Cash.100,000To record annual payment under capital lease.9第9页，共32页。Assets Acquired bySelf Construction Self-constructed assets Recorded at cost.Include all expenditures incurred to build the asset and make it ready for its intended
11、use.Costs include:Materials used to build the asset.The construction labor.Capitalized interest.Some reasonable share of the general company overhead.10第10页，共32页。Basket Purchases%When two or more assets are acquired at a single price,the prices are allocated on the“relative fair market value”method.
12、In this example,Dahl and Sons purchased land and a building at a total cost of$3,600,000.Prepare the entry to record the purchase.Land.900,000 Building.2,700,000Cash.3,600,000To record building and land acquired for$3,600,000.3,000,000100$3,600,000AssetFMV%of TotalValueCostLand$1,000,000 25%0.25 x$3
13、,600,000=$900,000Building 750.75 x$3,600,000=2,700,000Total$4,000,00011第11页，共32页。Depreciation Depreciation The process of cost allocation that assigns the original cost of plant and equipment to the periods benefited.Book value The assets original cost less any accumulated depreciation.Salvage value
14、 The amount expected to be received when the asset is sold at the end of its useful life.12第12页，共32页。Straight-Line Depreciation Costs assigned equally to all periods benefited.Annual DepreciationExpense=Cost-Salvage valueEstimated usefullife(years)=$24,000-$2,0004 years$5,500Depreciation Expense.5,5
15、00Accumulated Depreciation.5,500To record annual depreciation for truck.13第13页，共32页。Units-of-Production Depreciation Assigning depreciation according to what has been used during the year.Per UnitDepreciation=Cost-Salvage valueEstimated life in unitsDepreciationExpense=Per unitdepreciationxUnitsprod
16、ucedDepreciation Expense.4,400Accumulated Depreciation.4,400To record annual depreciation for truck.($24,000-$2,000)60,000 milesx12,000miles=$4,40014第14页，共32页。Partial-Year Depreciation Straight-line method Calculate depreciation expense for the year.Distribute it evenly over the number of months the
17、 asset is held during the year.Units-of-production method The same as normal because it is based off of the actual usage.15第15页，共32页。Repairing and Improving Assets Ordinary expenditures Typically benefit only the period in which they are made.(i.e.repairs,maintenance,and minor improvements.)Expense
18、when incurred.Capital expenditures Significant in amount and benefit more than the current period.Increase the productive life or capacity of the asset.(i.e.engine overhaul,components added.)Capitalize and add to asset value.Depreciated over the remaining life of the asset.16第16页，共32页。Impairments Im
19、pairment A decline in the value of a long-term operating asset.Sum of Future Cash Flows from AssetBook Value of AssetIs Sum of Future Cash Flows Less than the Book Value?IMPAIRMENTRecognize Loss and Record Asset at FAIR VALUE.NO IMPAIRMENTContinue to Recognize Asset at BOOK VALUE.YESNO17第17页，共32页。Im
20、pairments Journal entry reduces property value as listed on balance sheet and clears out the accumulated depreciation.Increases in asset values can never be recognized according to GAAP.Accumulated Depreciation.4,000Loss on Impairment of Equipment.1,000Building.5,000To record impairment of building.
21、18第18页，共32页。Discarding and Selling Long-Term Assets An assets cost and accumulated depreciation must be removed from the accounting records.Assets can be:Discarded(scrapped)Sold Exchanged19第19页，共32页。Discarding Property,Plant,and EquipmentAccumulated Depreciation,Conveyor.15,000Loss on Disposal of Co
22、nveyor.300 Conveyor.15,000 Cash.300 Scrapped$15,000 copier and paid$300 disposal costs.Dahl&Sons purchased an advance copier system for$15,000.It has a 5-year life,no salvage value,and is depreciated on a straight-line basis.If Frank pays$300 to have the copier removed,what is the appropriate entry?
23、20第20页，共32页。Selling Property,Plant,and EquipmentCash.600Accumulated Depreciation,Conveyor.12,000Loss on Sale of Conveyor.2,400Conveyor.15,000Sold$15,000 copier at a loss of$2,400.Dahl&Sons purchased an advanced copier system for$15,000.It has a 5-year life,no salvage value,and is depreciated on a st
24、raight-line basis.If the copier is sold for$600 after only four years of service,Dahl&Sons will experience a loss of$2,400.Make the appropriate entry.Losses are incurred when the asset is sold for less than the book value and gains are recorded when the asset is sold for more than the book value.21第
25、21页，共32页。Accounting for IntangiblesIntangiblesRights and privileges that are:Long-lived.Not held for resale.Have no physical substance.Providing owner with competitive advantage over other firms.AmortizationPeriodic allocation to expense of an intangible assets cost.Conceptually,the same as deprecia
26、tion.Intangible assets generally use straight-line amortization.22第22页，共32页。Types of Intangibles Patent An exclusive right granted for 17 years by the U.S.Federal Government to manufacture and sell an invention.Franchise An entity that has been licensed to sell the product of a manufacturer or to of
27、fer a particular service in a given area.License The right to perform certain activities,generally granted by a government agency.23第23页，共32页。Recognizing Intangible Assets Intangible assets are only recognized in the financial statements if they have been purchased.Amortize over the economic life of
28、 the intangible asset.Intangible assets with indefinite lives are not amortized.Intangible assets must be analyzed to determine if impairment has occurred.24第24页，共32页。Goodwill Goodwill An intangible asset that exists when a business is valued at more than the fair market value of its net assets,usua
29、lly due to:Strategic location Reputation Good customer relations Equal to the excess of the purchase price over the fair market value of the net assets purchased.25第25页，共32页。Accounting for GoodwillDahl&Sons purchased Clark&Associates for$1,200,000.At the time,the following market values existed for
30、Clarks assets and liabilities:Inventory$750,000 Long-term operating assets220,000 Other assets25,000 Liabilities (18,000)Total Net Assets$977,000 Inventory.750,000Long-Term Operating Assets.220,000Other Assets.25,000Goodwill.223,000Liabilities.18,000Cash.1,200,000Purchased Clark&Associates for$1,200
31、,000.26第26页，共32页。Measuring the Management of Long-Term Assets Fixed Asset Turnover The amount of dollars in sales generated by each dollar of fixed assets.Standard values for this ratio differ from industry to industry.SalesAverage PP&E27第27页，共32页。Accelerated Depreciation Methods Declining-balance m
32、ethod An assets book value is multiplied by a constant depreciation rate.This is double the straight-line percentage in the case of double-declining balance(DDB).Sum-of-the-years-digits method A constant balance(cost minus salvage value)is multiplied by a declining depreciation rate calculated based
33、 off of the sum of the years.28第28页，共32页。Double-Declining-BalanceX 2=Double-Declining BalanceDepreciation ExpenseBook ValueAssets Life in YearsBook Value=Cost Accumulated DepreciationYear 1($12,000 0)4X 2=$6,000Year 2($12,000$6,000)4X 2=$3,000Dahl&Sons purchased a truck for$12,000.The truck has a sa
34、lvage value of$2,000 and a useful life of 4 years.Compute depreciation using the DDB depreciation method for the first 2 years.29第29页，共32页。Sum-of-Years-Digits MethodSum of theyears of theassets lifeSum-of-the-Years-Digits(Cost Salvage Value)Current Year/(4+3+2+1)Year 1($12,000$2,000)4/(4+3+2+1)=$4,0
35、00Year 2($12,000$2,000)3/(4+3+2+1)=$3,000Dahl&Sons purchased a truck for$12,000.The truck has a salvage value of$2,000 and a useful life of 4 years.Compute depreciation using the SYD depreciation method for the first 2 years.30第30页，共32页。Change in Depreciation Estimates and Methods Depreciation is on
36、ly an estimate.Changes in estimates of useful life and salvage value may occur.Changes in method can also occur.When there is a change in estimate,past periods depreciation amounts remain the same.31第31页，共32页。Change in EstimatesDahl&Sons purchased a truck for$24,000 with a$2,000 salvage value and a 4-year useful life.After 3 years,better information reveals the truck has a 6-year useful life and a$3,000 salvage value.Calculate a new depreciation expense for the next three years.32第32页，共32页。
