Reliability
1. Determine cost (original carrying value)
2. Allocate against revenue
3. Distinguish between repairs and betterments for accounting purposes
4. Treatment of disposal
L02 Acquisition Cost of P,P&E
? Capital expenditure vs. revenue expenditure
o "benefit future periods"
o "Support but not extend benefit period"
? Cost includes all costs necessary to
o Put asset in place & ready to use
o Management's judgment to policies apply
o Includes interest during period of construction
? Land & Land Improvement
o Driveways, fences, parking lots, lightning
? Buildings & leasehold improvement (treated as intangible in textbook)
o Over useful life
o Over lease term, if less
? Equipment
? Group purchases ? appraisals
L03 Accounting for Depreciation
? Allocate cost over useful life
o Not the valuation issue
? Cost, Residual value, Depreciable cost, Estimated useful life
? (Set up depreciation schedule on excel)
? Methods of computation
o Strait line
o Production method
o Declining balance
? Double declining
? Sum of the year's assets
? Use of declining method
o Theory
o Tax implications
L04 Disposal of Depreciable Assets
? Bring depreciation up to date upon disposal ? remember the matching principle
? Cost and accumulated depreciation are removed with difference (carrying value or book value) compared to proceeds, if any, or value of replacements, if traded
? Difference if gain or loss except for trades in gains for similar assets (reason)
o Note difference with tax law for losses on similar assets (like kind) ? similar & dissimilar are not necessarily the same for financial and tax reporting
o Note that deferral of cost for tax purposes increases basis in asset above its fair value
o Note that deferral of gain for book purposes decreases causing value and, therefore, depreciation in future period
? Tax depreciation is not GAAP ? concepts of materiality and conservatism
L05 Accounting for Natural Resources
? Depletion ? similar to production method of depreciation
? Remember residual value
o Allocate cost of land among resource residual
? Cost depletion for books
o % depletion also available for tax (% of revenue)
? Watch depreciation of single use tangible asset related to dependable resources
Oil & Gas industry
? Cost of development & exploration
? Successful efforts method
o Treat as asset cost associated with successful drilling of a well ? conservative
? Full costing method
o Treat as asset cost associated with field with some successful wells and other dry wells
L06 Accounting for Intangible Assets
? Purchase only ? except for ? developed software which has become marketable with some assurance for revenue stream (can recover carrying value)
? Amortization over shorter of legal or estimated useful life
? Goodwill ? impairment test ? "lower of cost or market" concept
o Relevance vs... displayed 300 characters
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Reliability
1. Determine cost (original carrying value)
2. Allocate against revenue
3. Distinguish between repairs and betterments for accounting purposes
4. Treatment of disposal
L02 Acquisition Cost of P,P&E
? Capital expenditure vs. revenue expenditure
o "benefit future periods"
o "Support but not extend benefit period"
? Cost includes all costs necessary to
o Put asset in place & ready to use
o Management's judgment to policies apply
o Includes interest during period of construction
? Land & Land Improvement
o Driveways, fences, parking lots, lightning
? Buildings & leasehold improvement (treated as intangible in textbook)
o Over useful life
o Over lease term, if less
? Equipment
? Group purchases ? appraisals
L03 Accounting for Depreciation
? Allocate cost over useful life
o Not the valuation issue
? Cost, Residual value, Depreciable cost, Estimated useful life
? (Set up depreciation schedule on excel)
? Methods of computation
o Strait line
o Production method
o Declining balance
? Double declining
? Sum of the year's assets
? Use of declining method
o Theory
o Tax implications
L04 Disposal of Depreciable Assets
? Bring depreciation up to date upon disposal ? remember the matching principle
? Cost and accumulated depreciation are removed with difference (carrying value or book value) compared to proceeds, if any, or value of replacements, if traded
? Difference if gain or loss except for trades in gains for similar assets (reason)
o Note difference with tax law for losses on similar assets (like kind) ? similar & dissimilar are not necessarily the same for financial and tax reporting
o Note that deferral of cost for tax purposes increases basis in asset above its fair value
o Note that deferral of gain for book purposes decreases causing value and, therefore, depreciation in future period
? Tax depreciation is not GAAP ? concepts of materiality and conservatism
L05 Accounting for Natural Resources
? Depletion ? similar to production method of depreciation
? Remember residual value
o Allocate cost of land among resource residual
? Cost depletion for books
o % depletion also available for tax (% of revenue)
? Watch depreciation of single use tangible asset related to dependable resources
Oil & Gas industry
? Cost of development & exploration
? Successful efforts method
o Treat as asset cost associated with successful drilling of a well ? conservative
? Full costing method
o Treat as asset cost associated with field with some successful wells and other dry wells
L06 Accounting for Intangible Assets
? Purchase only ? except for ? developed software which has become marketable with some assurance for revenue stream (can recover carrying value)
? Amortization over shorter of legal or estimated useful life
? Goodwill ? impairment test ? "lower of cost or market" concept
o Relevance vs... displayed 300 characters
