Non-Current Assets
Allocation Base
= Initial Value of the Asset (Acquisition Cost) - Residual Value (Salvage Value)
Franchises
A contractual arrangement under which a franchisor grants the franchisee the exclusive right to use the franchisor's trademark or tradename and certain product rights.
Goodwill
An intangible asset. It is the amount by which the value of the firm exceeds the value of the net assets held by the firm. It can be seen as the value of the firm's reputation and customer base.
Average Accumulated Expenditures
Approximates the debt necessary for construction.
Equipment
Broad term that includes machinery, computers, and other office equipment, vehicles, furniture, and fixtures. Acquisition costs are: = Purchase Price (less discounts) + Taxes + Transportation + Installation + Testing + Trial Runs + Reconditioning Costs
Amortization
The allocation of asset cost over time for intangible assets
Depletion
The allocation of asset cost over time for natural resources
Depreciation
The allocation of asset cost over time for plant and equipment
Fair Value
The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction'.
Amount of Interest Capitalized for Self-Constructed Asset
The amount of interest capitalized is only the portion of interest cost incurred during the construction period that could have been avoided if expenditures for the asset had not been made. As a result, interest should be determined for only the construction expenditures actually incurred during the capitalization period
Salvage Value
The amount the company expects to receive for the asset at the end of its service life less any anticipated disposal costs.
Acquisition Costs
The amounts paid to acquire the rights to explore for undiscovered natural resources or to extract proven natural resources.
Period of Capitalization for Self Constructed Assets
The capitalization period begins with the first expenditure (materials, labor, or overhead) and ends either when the asset is substantially complete and ready for use or when interest costs are no longer being incurred.
Expected Cash Flow Approach
This approach incorporates specific probabilities of cash flows into the analysis. Rather than focusing on the interest rate selection, this approach uses only the risk-free rate of return as the discount rate and then turns its attention to the expected future cash flows, considering uncertainties (e.g., default risk) as adjustments to the future cash flows. It uses a discount rate equal to the credit-adjusted risk free rate. - The higher a companies credit risk, the higher the discount rate will be. - All other uncertainties or risks are incorporated into the cash flow probabilities.
Intangible Assets
Unlike Property plant and equipment and natural resources, these lack physical substance and the extent and timing of their future benefits is usually highly uncertain. Includes: Trademarks (tradenames) , Customer/contract related assets, Patents, Copyrights, Franchises, and Non-competition agreements
Asset Retirement Obligations (ARO's)
Costs from obligations associated with the disposition of property, plant, and equipment and natural resources, often as a result of acquiring those assets. GAAP requires ARO's of a tangible, long-lived asset be recognized as a liability and measured at fair value if value can be reasonably estimated. ARO's arise only from legal obligations associated with the retirement of a tangible long lived asset. Measurement: - A company recognizes the fair value of an ARO in the period it is incurred. The liability increases the valuation of the asset. Typically, the fair value is estimated by calculating the present value of estimated future cash outflows.
Development Costs
Costs incurred after the resource has been discovered but before production begins.
Restoration Costs
Costs to restore land or property to its original condition after extraction of the natural resource ends.
Patents
Exclusive 20-year right to manufacture a product or use a process
Copyrights
Exclusive right to benefit from a creative work such as a song, film, painting, photograph, or book
Trademarks (tradenames)
Exclusive right to display a word, a slogan, a symbol, or an emblem that distinctively identifies a company, product, or a service. Trademarks are registered with the U.S. Patent Office, which protects the trademark from use by others for a period of 10 years. The registration can be renewed for an indefinite number of 10 year periods, so a trademark is an example of an intangible asset whose useful life could be indefinite.
Exploration Costs
Expenditures such as drilling a well, or excavating a mine, or any other costs of searching for natural resources.
Costs for Natural Resources
If purchased from another company, then it is simply the purchase price plus any other costs necessary to bring the asset to condition and location for use. If the company develops these assets the initial valuation can include: a) Acquisition Costs b) Exploration Costs c) Development Costs d) Restoration Costs
Cost of a Self-Constructed Asset
Includes identifiable materials and labor and a portion of the company's manufacturing overhead costs.
Requirements to Capitalize Interest on Self-Constructed Assets
Interest is capitalized during the construction period for a) Assets built for a company's own use and b) Assets constructed as discrete projects for sale or lease (a ship or real estate development for example)
Natural Resources
Productive Assets that are physically consumed in operations such as timber, mineral deposits, and oil and gas reserves.
Property, Plant, and Equipment
Productive assets that derive their value from long-term use in operations rather than from resale. Assets in this category include land, buildings, equipment, machinery, autos, and trucks. - Natural Resources such as oil and gas deposits, timber tracts, and mineral deposits are also included.
Accretion Expense
the increase in an asset retirement obligation that accrues as an operating expense.