ACC 310 CH10

Goodwill

Asset representing future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized

Development Costs

Costs incurred after the resource has been discovered but before production begins

Asset Retirement Obligations

Measured at fair value and is recognized as a liability and corresponding increase in asset valuation

Intangible assets

Unlike property, plant, and equipment, these lack physical substance and the extent and timing of their future benefits typically are highly uncertain (Include patents, copyrights, trademarks, franchises, and goodwill)

accretion expense

recognizes the addition to the asset retirement obligation

razing land

removing land

Expected cash flow approach

...

Learning Objectives

1. Identify the various costs included in the initial cost of property, plant and equipment, natural resources, intangible resources 2. Determine the initial cost of individual property, plant, and equipment, and intangible assets acquired as a group for a lump-sum purchase price 3. Determine the initial cost of property, plant, and equipment and intangible assets acquired in exchange for a deferred payment contract 4. Determine the initial cost of property, plant, and equipment and intangible assets acquired in exchange for equity securities or through donation 5. Calculate the fixed-asset turnover ratio used by analysts to measure how effectively managers use property, plant, and equipment 6. Explain how to account for dispositions and exchanges for other nonmonetary assets 7. Identify the items included in the cost of all self-constructed asset and determine the amount of capitalized interest 8. Explain the difference in the accounting treatment of costs incurred to purchase intangible assets versus the costs incurred to internally develop intangible assets 9. Discuss the primary differences between US GAAP and IRS with respect to the acquisition and disposition of property, plant, and equipment, and intangible assets

Amortization

Allocation of asset cost over time for intangible assets

Depletion

Allocation of asset cost over time for natural resources

Depreciation

Allocation of asset cost over time for plant and equipment

Acquisition Costs

Amounts paid to acquire the rights to explore for undiscovered natural sources or to extract proven natural resources

Capitalize (definition)

An accounting method used to delay the recognition of expenses by recording the expense as long-term assets.

Property, plant, and equipment (what it includes)

Assets in this category include: Land Buildings Equipment Machinery Autos Trucks Natural resources

Franchise

Contractual arrangement under which the franchisor grants the franchisee the exclusive right to use the franchisor's trademark or tradename and may include product and formula rights, within a geographical area, usually for a specified period of time

Land improvements

Cost of land improvements are capitalized and depreciated

Copyright

Exclusive right of protection given to a creator of published work, such as a song, film, painting, photograph, or book

Trademark

Exclusive right to display a word, a slogan, a symbol, or an emblem that distinctively identifies a company, a product, or a service

Patent

Exclusive right to manufacture a product or to use a process. Granted for 20 years.

Exploration Costs

Expenditures such as drilling a well, or excavating a mine, or any other costs of searching for natural resources

Diposition

Getting rid of an asset or security through a direct sale or some other method.

Natural resources

Include resources such as oil and gas deposits, timber tracts, and mineral deposits

Property, plant, and equipment (definition)

Productive assets that derive from their value from long-term use in operations rather than from resale

Identify the various costs included in the initial cost of property, plant and equipment, natural resources, intangible resources

The initial cost of property, plant, and equipment and intangible assets includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use

expenditures that produce future benefits are *capitalized*

They are recorded as an asset and expensed in future periods