ACCT 200 1st Edition Outline of Last Lecture I Homework 6 14 II Homework 6 15 III Homework 6 16 IV Homework 9 10 V Homework 9 11 Outline of Current Lecture I Expenditures II Expenditures Table III Recording an asset IV Capitalization V Land or Land Improvement VI Depreciation Current Lecture I Expenditures a Expenditures can be recorded as assets OR expenses b capitalize make it an asset c Assets on Balance Sheet i Current ii Long term 1 Fixed PPE property plant equipment 2 Investment These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute 3 Intangible can t touch them i e trademarks patents copyrights d Expense on Balance Sheet i Also known as revenue expenditures e if we don t record expenses net income will be overstated that s why we need to know how to record this stuf f II III land is a tangible fixed asset not depreciable because it will never be used up Expenditures Table Fixed Investment Intangible Physical substance Yes Yes no No Held for resale No Yes No Used for productive purposes Yes No Yes Used to generate operating revenue Yes No yes Recording an asset a Date of acquisition i What is the asset s cost Record the assets at historical cost NOT current market value b Over Asset s Life i How do we report subsequent expenditures related to the asset Record it as expense or as an asset capitalize it ii What about annual depreciation expense This is the using up of a company s fixed assets NO CASH involved iii Accumulated Depreciation This is a contra asset iv Book Value Net book value historical cost accumulated depreciation 1 Net book value is how much the company has left to use c At Disposal of Asset i Gain or loss 1 Gain when selling price is greater than net book value like revenues increases retained earnings and owner s equity 2 Loss when selling price is less than the net book value like expenses decreases retained earnings and owner s equity IV Capitalization a Capitalized asset cost all expenditures needed to acquire an asset and put it to its intended use b don t capitalize as assets the costs of repairing damage fines etc c purchase price capitalize sales tax capitalize freight costs capitalize pay cash insurance capitalize installation testing capitalize damage repair expensed i did the repair improve the piece of equipment of just return it to its original state If no new value is added the cost is expensed d Capitalize on balance sheet if i Cost improves asset ii Cost extends asset s useful life like some extraordinary repair e Expense on income statement if i Cost maintains asset ii Cost is ordinary repair V Land or Land Improvement a Land never gets depreciated because it cannot be used up b Land improvements will eventually be used up and have to be redone they will break down at some point c Buildings get used up and are depreciated VI Depreciation recorded for fixed assets lasting longer than one year a Recorded as increased depreciation expense income statement and increase accumulated depreciation balance sheet b Depreciable cost historical cost residual value i Depreciable cost is the total amount of depreciation that can be recorded over an asset s useful life c Residual value leftover value never depreciate below residual value d Book Value historical cost accumulated depreciation i Book value is an estimate of how much of an asset the company has left to use e Straight line depreciation an asset depreciates the same amount every full year i Annual Depreciation historical cost residual value x 1 useful life f Double Declining Balance Depreciation i Annual Depreciation historical cost residual value x 2 useful life