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Chapter 9: CAPITAL ASSETS

CHAPTER. 9. Chapter 9: CAPITAL ASSETS Tuesday May 27 : We will meet at room 228. Please bring laptop tomorrow, since we are lack of computers. FINANCIAL STATEMENT PRESENTATION of Intangible Assets. CKSS Balance Sheet December 31, 2013 Assets Rental equipment (note 4) $90,348

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Chapter 9: CAPITAL ASSETS

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  1. CHAPTER 9 Chapter 9: CAPITAL ASSETS Tuesday May 27 : We will meet at room 228. Please bring laptop tomorrow, since we are lack of computers.

  2. FINANCIAL STATEMENT PRESENTATION of Intangible Assets CKSS Balance Sheet December 31, 2013 Assets Rental equipment (note 4) $90,348 Property, plant and equipment (note5) 68,959 Intangible assets 7,355 Goodwill 121,378

  3. FINANCIAL STATEMENT PRESENTATION • In the balance sheet, property, plant and equipment, natural resources are often combined and reported in the balance sheet as “Property, Plant and Equipment” or “capital assets” or “fixed assets”. • Intangible assets are normally listed separately, after PPE. • Goodwill must be disclosed separately from the intangible assets. • There should be disclosure of the balances in the major classes of assets and accumulated amortization of major classes of assets or of assets in total.

  4. FINANCIAL STATEMENT PRESENTATION • The amortization methods used should be described and the amount of amortization expense for the period disclosed. • Their impairment policy must also be disclosed in the notes to the financial statements. • Impairment losses should be shown on a separate line on the income statement. • Note 4: discloses the cost, accumulated amortization and net book value of the rental equipment. • Note 5: discloses the cost, accumulated amortization and net book value of the company’s property, pant and equipment.

  5. ASSET TURNOVER RATIO • The following two ratios assess the profitability of total assets. • Asset turnover ratio showshow efficiently a company uses its assets to generate sales. • This ratio shows how much dollars of sales are generated by each dollar which is invested in assets. • When we compare two companies in the same industry, the one with the higher asset turnover is operating more efficiently. Net Average Assets Sales Total Assets Turnover  =

  6. Asset Turnover Ratio • Samsung vs Apple: If Samsung’s ATA and Apple’s ATA are the same number, (100 M) but Samsung’s net sales is 10 M whereas Apple’s net sales is 8 M. Which company has a higher asset turnover? Which company is operating more efficiently? • If Dell’s net sales and HP’s net sales are 5M. Dell’s ATA is $20M whereas HP’s ATA is $50M. Then Which company is operating more efficiently?

  7. RETURN ON ASSETS • The return on assets ratio measures overall profitability. • This ratio indicates the amount of earnings which is generated by each dollar invested in assets. • A high return on assets number indicates a profitable company. • The ratio that shows the profitability of assets used in the earnings process is thereturn on assets. • As with other ratios, the return on assets should be compared to previous years, to other companies in same industry and to industry averages. Net Average Return on IncomeTotal AssetsAssets = 

  8. Classwork / Homework • P501 E9.13 and E9.14 • P506 P9.11 and P9.13

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