1. Property, Plant, and Equipment and Intangible Assets: Utilization and Impairment Chapter 11

2. Cost Allocation Matching Depreciation Depletion Amortization

3. Depreciation Service life Units of time Units of activity Allocation base Value of usefulness (initial value – residual value) Allocation method Passage of time Activity

4. Passage of Time Straight-line method Allocation base/number of years Accelerated methods Sum-of-the-years’ digits Number of years’ left/sum-of-the-years Double declining balance Two times the straight-line rate x balance Can change from DDB to straight line halfway through useful life as part of planned depreciation approach – not considered a change in method.

5. Activity Based Units-of-production Allocation base / Estimated number of units = Rate per measure of activity Annual depreciation = rate x actual activity

6. IFRS – PP&E Requires that each component of an item of property, plant and equipment must be depreciated separately if its cost is significant in relation to the total cost of the item. Requires a review of residual value at least annually. Allows PP&E to be reported at cost less accumulated depreciation (U.S. GAAP) or, alternatively, at its fair value (revaluation).

7. Depletion of Natural Resources Related to amount of resources extracted Units-of-production method Depletion rate Cost less residual value / est amount of resources Entry Depletion expense (debit) Natural resource asset (credit)

8. Amortization of Intangible Assets Intangible assets with finite useful life Useful life Residual value Allocation method Straight-line Ratio of current revenue to current and anticipated revenues Entry Amortization expense (debit) Intangible asset (credit)

9. Intangible Assets not Amortized Intangible assets with an indefinite useful life Trademarks or trade names Goodwill

10. Cost of Defending Intangible Rights Successfully defended Capitalized Amortized over remaining useful life Unsuccessfully defended Expensed

11. IFRS - Intangibles Allows intangible assets to be valued at Cost les accumulated amortization Fair value, if fair value (revaluation) can be determined by reference to active market. Revaluation If fair value is higher than book value, the difference is reported as other comprehensive income (OCI) and then accumulates in a revaluation surplus account in equity.

12. Change in Estimate Useful life and residual value Prospective Prior financial statements not restated Incorporate new estimate from then on (cost - accum depr) - residual value / est remaining life Disclosure Describe effect of change in estimate on income before extraordinary items, net income and related per share amounts for current period

13. Change in Method Prospectively (similar of change in estimate) Requires justification in the disclosure note Many times effective only for assets placed in service after that date

14. Error Correction Material error Retrospective Any prior years’ financial statements restated to reflect correction Account balances are corrected Disclosure Describe the nature of the error and impact of its correction on net income and income before extraordinary items

15. Impairment of Value Operating assets to be held and used Tangible operational assets and finite intangible assets Test only if events or changes in circumstances indicate that the BV may not be recoverable Recoverability test Undiscounted sum of future cash flow < book value Measurement of impairment loss Book value – fair value

16. Impairment of Value Operating assets to be held and used Indefinite life intangible assets (not goodwill) Tested annually Impairment loss if book value > fair value Goodwill Tested annually Impairment loss if book value > fair value Measurement of loss = book value of goodwill – “implied” fair value of goodwill Fair value – fair value net assets excluding goodwill

17. Impairment of Value Operational assets to be sold Impairment loss if book value exceeds fair value less cost to sell

18. IFRS – Impairment Loss PP&E and finite-life intangible assets Impairment if book value > recoverable amt. higher of value-in-use (PV future cash flow) and fair value less cost to sell Subsequent reversal required Indefinite-life intangible assets Goodwill Impairment if book value > recoverable amt

19. Subsequent Expenditures Expenditures subsequent to acquisition that increase future benefits Extend useful life Increase operating efficiency that results in either an increase in quantity or decrease in future costs Increase in quality Repairs and maintenance - expensed Additions - capitalized Improvements - capitalized Rearrangements – capitalized, if material

20. Disclosures Note 1: Summary of Significant Accounting Policies Method(s) used Capitalization policy Service life Changes Depreciation for taxes Goodwill, Intangible Assets Impairment of long-lived assets Note X: Property, Plant and Equipment Asset classes Depreciation by class