Property, Plant, Equipment, and Intangible Assets
Amortization: Intangible Assets
Amortize the intangible assets with FINITE lives INDEFINITE useful lives not amortized
Acquisition Costs: PPE
Condition and location for intended use
Franchises
Contractual arrangement Franchisor and franchisee Exclusive right to use franchisor's rights granted
Depreciation: Natural Resources
Depleted Generally uses units of production (activity method)
Depreciation: Buildings
Depreciate over estimated useful life
Depreciation: Equipment
Depreciate over estimated useful life
Depreciation: Land Improvements
Depreciate over periods that benefit from use
Trademarks
Distinct identification with company, product, or service Right to display Renewed every 10 yrs
Acquisition Costs: Goodwill
Excess of fair value of consideration exchanged for the company over fair value of net assets (assets-liabilities) acquired
Patents
Exclusive 20-yr right to manufacture/use a product or process
Copyrights
Exclusive right to benefit from a creative work; protected for life of creator + 70 yrs
Impairment: Intangible Assets
FINITE life -Tested for impairment when changes in circumstances indicate book value may not be recoverable Steps 1) Impairment loss when UNDISCOUNTED sum of future cash flows < book value 2) Impairment loss = book value - FAIR value
Acquisition Costs: Franchises
Franchise fee Legal fees *D/n include periodic fees related to franchise
Depreciation: Land
Held at original acquisition cost indefinitely *Considered to have an infinite life
Equipment
Machinery, computers, vehicles, office related, furniture, etc.
Buildings
Structures Ex) Warehouses, plant facilities, offices
Goodwill
Unique value of company above identifiable assets Occurs when acquired and exchange value > net assets (measured in fair value)
Acquisition Costs: Natural Resources
Acquisition costs (right to use of land) Exploration costs (pre-production) Development costs (pre-production) Restoration costs (post-production)
Acquisition Costs: Intangible Assets
All expenditures necessary to get the asset in condition and location for intended use
Impairment: PPE
-Circumstances indicate book value may not be recoverable 1) Impairment loss when UNDISCOUNTED sum of future cash flows is < book value 2) Impairment loss is the excess book value over FAIR VALUE
Amortization: Franchises
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Amortization: Trademarks
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Impairment: Buildings
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Impairment: Copyrights
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Impairment: Equipment
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Impairment: Franchises
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Impairment: Goodwil
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Impairment: Land Improvements
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Impairment: Natural Resources
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Impairment: Patents
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Impairment: Trademarks
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Amortization: Goodwill
NEVER amortized!
Impairment: Land
Never impaired unless some horrendous/extraordinary event occurs (ie a nuke)
Amortization: Patents
Over 20 yrs or useful life, whichever is shorter
Amortization: Copyrights
Over useful life (?)
Derive value from long term use in operations rather than from resale
PPE
Natural Resources
Productive assets that are physically consumed Ex) Timber, minerals, oil and gas
Intangible Assets
Productive assets that lack physical substance and have long-term but (typically) uncertain benefits
PPE
Productive assets with physical substance
Land Improvements
Property enhancements Ex) Parking lot, driveway, landscaping, sprinkler systems
Acquisition Costs: Buildings
Purchase price Attorney's fees Commissions Reconditioning
Acquisition Costs: Land
Purchase price Attorney's fees Title insurance Recording fee commissions BACK taxes Mortgages Liens Clearing/filling/draining Removing old buildings
Acquisition Costs: Copyrights
Purchase price Legal fees Filing fees *D/ include internal research and development
Acquisition Costs: Trademarks
Purchase price Legal fees Filing fees *D/n include internal research and development
Acquisition Costs: Patents
Purchase price Successful defense legal fees Filing fees *D/n include internal research and development
Acquisition Costs: Equipment
Purchase price (less discounts) Taxes Transportation Installation Trial runs and testing Reconditioning *D/n include employee training
Land
Real property used in operations
Depreciation: PPE
Rely on estimates of residual value, useful life
Acquisition Costs: Land Improvements
Separately identifiable costs associated with the land improvements
