1. · 1 CORPORATE FINANCIAL REPORTING 9 - Reporting of Long Lived Assets Long-Lived Assets

2. L ONG- L IVED A SSETS O UTLINE Property, plant and equipment Acquisition cost Use Betterment vs. maintenance Disposal: sale or exchange Changes (accounting changes in general) Revaluing PP&E Impairment Natural resources Intangible assets 2Long-Lived Assets

3. P ROPERTY, P LANT A ND E QUIPMENT Acquisition Cost What’s included in cost (“capitalized”): all costs of acquiring the asset and getting it ready for use. 3Long-Lived Assets

4. P ROPERTY, P LANT A ND E QUIPMENT Acquisition Cost List price of machine$100,000 Shipping to the U.S. 8,000 Trucking to Boulder 1,000 Labor bringing machine into factory 170 Cost of installing machine 230 Technician travel costs 2,000 Technician labor costs 3,000 Raw material spoiled adjusting machine 100 Cost of machine$114,500 4Long-Lived Assets

5. P ROPERTY, P LANT A ND E QUIPMENT Acquisition Cost - Overhead Your company’s president spend ½ of his/her time supervising construction of the warehouse. The president is paid $400,000/year. The labor and material cost of the warehouse is $1,200,000. What is the cost of the warehouse? 5Long-Lived Assets

6. P ROPERTY, P LANT A ND E QUIPMENT Use Depreciation/amortization – the method used should mimic the use the company gets from the asset – perhaps measured by revenue generated by the asset. There are many methods, but the most commonly used in public financial statements is: straight line, but others are used units of production declining balance sum of the years digits 6Long-Lived Assets

7. P ROPERTY, P LANT A ND E QUIPMENT PP&E “Used Up” We discussed another “contra account”: Accumulated Depreciation 7Long-Lived Assets

8. P ROPERTY, P LANT A ND E QUIPMENT Betterment vs. Maintenance 8Long-Lived Assets

9. P ROPERTY, P LANT A ND E QUIPMENT Revaluation US GAAP: yes and no IFRS: goes both ways 9Long-Lived Assets

10. P ROPERTY, P LANT A ND E QUIPMENT Impairment Your company has some fixed assets: Fixed assets$1,800,000 Accumulated depreciation 800,000 Book value (carrying value)$1,000,000 What are your expectations regarding net future cash flows generated by those assets? 10Long-Lived Assets

11. P ROPERTY, P LANT A ND E QUIPMENT Disposal - sale Your company has this drill press on its balance sheet: Machine $ 100,000 Accum. deprec.( 70,000) book value $ 30,000 Your company sells the asset for $35,000. 11Long-Lived Assets

12. P ROPERTY, P LANT A ND E QUIPMENT Disposal - exchange Your company has this drill press on its balance sheet: Machine $ 100,000 Accum. deprec.( 70,000) book value $ 30,000 Your company trades the asset and $4,000 cash for another one with a fair value of $39,000. 12Long-Lived Assets

13. P ROPERTY, P LANT A ND E QUIPMENT “Changes” FASB identified three types of “changes” that apply to everything. Entity Estimate Method 13Long-Lived Assets

14. I NTANGIBLE A SSETS FASB looks at intangible assets as falling into two categories: those with a limited economic life (such as copyright, patent, etc.) those with indefinite life (goodwill, trademark, etc.) 14Long-Lived Assets

15. N ATURAL R ESOURCES Same general idea as with tangible assets. 15Long-Lived Assets

16. I NTANGIBLE A SSETS Research and Development Strange treatment of research and development. Exception for software development. 16Long-Lived Assets

17. Q UESTIONS? ? 17Long-Lived Assets