© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

1. © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter 6 Accounting for and Presentation of Property, Plant, and Equipment, and Other Noncurrent Assets

2. Noncurrent Assets Land Buildings 1) Classified as assets because they are owned by the organization. 2) Have the ability to generate revenue beyond one year. Equipment Intangible Assets Natural Resources

3. Title insurance premiums Delinquent taxes Real estate commissions Razing costs of building on the land Purchaseprice Title and legal fees Land L O 1 All costs incurred to get land ready for use are capitalized. Land is a non-depreciable asset.

4. Purchaseprice Installationcosts Architecturalfees Transportation costs Cost ofpermits Excavation andconstruction costs Buildings and Equipment L O 1 All costs incurred to get an asset ready for use are capitalized.

5. Depreciationis the allocation of the cost of an asset to the years in which the benefits of the asset are expected to be received. It is an application of thematching concept. Balance Sheet Income Statement AcquisitionCost Expense Cost Allocation (Unused) (Used) Depreciation L O 2 Does not reflect decline in value.

6. Straight-Line Methods Straight-line Units of production Accelerated Methods Sum-of-the-years’-digits Declining balance Depreciation Methods L O 3

7. Double the Straight-line Depreciation Rate Annual DepreciationExpense Book Value at Beginning of Year = × 1 Life in Years × 2 Declining-Balance Method L O 3 Since we are using two times the straight-line rate, this is called theDouble-Declining-Balance Method.

8. Units-of-Production Straight-Line AnnualDepreciation AnnualDepreciation Life in Years Life in Years Double-Declining-Balance AnnualDepreciation Life in Years Comparing Depreciation Methods L O 3 Total depreciation atend of useful lifewill be the same regardless of depreciation method

9. Depreciation for Tax Reporting L O 4 Most corporations use theModified Accelerated Cost Recovery System (MACRS)for tax purposes. MACRS depreciation provides for rapid write-off of an asset’s cost in order to stimulate new investment. Salvage values are ignored Useful lives are set by the Internal Revenue Service

10. Maintenance and Repair Expense L O 5 Preventative maintenance expenditures and routine repair costs are clearly expenses of the period in which they are incurred.

11. Update depreciation to the date of disposal. Recording cashreceived (debit). Recording again (credit) or loss (debit). Removing accumulateddepreciation (debit). Removing the asset cost (credit). Disposal of Depreciable Assets L O 6 Journalize disposal by:

12. Assets Acquired by Capital Lease L O 7 Anoperating leaseis an ordinary lease for the use of an asset that does not involve any attributes of ownership. Acapital leaseresults in the lessee (renter) assuming virtually all of the benefits and risks of ownership for the leased asset.

13. Buy or Lease an Asset? L O 8 Buy Lease Leasing the computer is essentially the same as buying it. Both methods of acquiring the asset yield the same economic impact and the same effect on the financial statements.

14. Often provideexclusive rightsor privileges. Noncurrent assetswithout physicalsubstance. Usually acquired for operational use. Useful life isoften difficultto determine. Intangible Assets L O 9 IntangibleAssets

15. Occurs when onecompany buysanother company. Only ‘purchased’ goodwill is an intangible asset. The amount by which thepurchase price exceeds the fairmarket value of net assets acquired. Goodwill L O 9 Goodwill

16. Time Value of Money L O 10 Future Value: the value at some future date of an investment made today. Today 1 year 2 years 3 years 4 years $ 1,000 Invested at 10% has a future value of $ 1,464 Present Value: the value now of an amount to be received or paid at some future date. Today 1 year 2 years 3 years 4 years $ 1,000 Is the present value at 10% of $ 1,464