1. Long Lived Assets Types Cost determination Balance sheet presentation Disposal

2. Types: Land Buildings and equipment (plant assets) Intangible assets Natural resources

3. Cost Determination: Acquisition or production cost plus Costs needed to get asset ready for its intended use –Transportation –Installation –Modification

4. X Co incurred the following cost: equipment price: $10,000; 2% cash discount; Freight in $4,000; installation & testing $2,000; repair of part broken during installation $700. The equipment should be recorded at a cost of A.$ 16,500 B.$ 15,800 C.$ 16,700 D.$ 16,000

5. Cost of Self Constructed Assets Material Labor Overhead Interest incurred during construction (FAS 34)

6. Interest Capitalization 1.Determine applicable interest rate 2.Determine the weighted average expenditures (WAE) 3.Determine avoidable interest 4.Determine actual interest incurred 5.Capitalize the lower of avoidable or actual interest

7. Exercise 10-10 1.Situation 1- Determine the amount of interest to be capitalized 2.Situation 3 Determine the amount of interest to be capitalized

8. Lump Sum purchases Allocate the price paid in relation to the Fair Market Value of each asset. 1.E 10-13 – the land should be recorded at what cost? 2.E 10-13 – the building should be recorded at what cost?

9. Asset acquired for non interest bearing note – MUST be discounted! E 10 – 14 Determine the cost at which the equipment should be recorded

10. Balance Sheet Presentation: Land, Goodwill at historical cost (unless written down for impairment) All other assets: Book value (BV): Cost – accumulated depreciation (or amortization or depletion)

11. Balance Sheet Presentation: Equipment100,000 Less accumulated depreciation (54,000) Equipment (net)$46,000 Or: Equipment (net)$46,000 (see note xx)

12. Disposal (Methods): Retire (junk) --  always loss Sell --  gain or loss Trade in (for similar) --  only loss recognized, otherwise new asset shown at book value of old

13. Trade (Exchange) Two part process: part 1 remove old asset from books Part 2 record new asset and any gain or loss NEW RULE (SFAS 153) UP 2-8 in your text book

14. Non Monetary Exchange with Commercial Substance That means that there is a change in the company’s expected future cash flows associated with the items exchanged. You must be told Cost of New asset is determined as equal to the FMV of asset given up (traded in) plus any cash paid. Gain or loss is recognized

15. Non Monetary Exchange without Commercial Substance That means that there is NO change in the company’s expected future cash flows associated with the items exchanged. You must be told Cost of New asset is determined as equal to the FMV of asset given up (traded in) plus any cash paid. If loss, recognize. Gains are deferred (use book value instead of FMV)

16. Work UP 10-3 Case a Garrison would record the following A.New crane as $198; gain of $18 B.New crane as $ 190; gain of 8 C.New crane as $ 190; loss of 8 D.New crane as $ 190; loss of 18

17. Work UP 10-3 Case d Garrison would record the following A.New crane as $198; gain of $18 B.New crane as $ 190; gain of 7 C.New crane as $ 183; no gain/loss D.New crane as $ 183; loss of 7

18. Disposal: Get cost and accumulated depreciation off the books Determine gain or loss Gain (Loss): Cash received – Book value (cost – accumulated depreciation)

19. Disposal: Example: Cost: 100,000 Accumulated Depreciation 54,000 Book value 46,000 Sold for 38,000 Loss: 8,000

20. Disposal: Example (journal entry): Dr. cash 38,000 Dr. accumulated depreciation54,000 Dr. loss 8,000 Cr. Equipment100,000

21. Answers 1.( slide 4) B 2.(slide 7) – 1 $80,000 3.(slide 7) – 2 $385,000 4.(slide 8) – 1 $350,000 5.(slide 8) – 2 $ 1, 050,000 6.(slide 9) $ 576,765 7.(slide 16) C 8.(slide 17) C