ACCT 200 1nd Edition Lecture 13 Outline of Last Lecture II Plant Assets III Determining the Cost for Plant Assets IV Accounting for Plant Assets Outline of Current Lecture V Accounting for Plant Assets continued VI Analyzing Plant Assets VII Intangible Assets VIII Financial Statement Presentation of Long Lived Assets Current Lecture Chapter 9 Continued Reporting and Analyzing Long Lived Assets Plant Asset Disposals Companies dispose of plant assets in three ways o Retirement equipment is scrapped or discarded o Sale equipment is sold to another party o Exchange existing equipment is traded for new equipment Record deprecation up to the date of disposal Eliminate asset by removing assets and removing accumulated deprecation Sale of plant assets Compare the book value of the asset with the proceeds received from the sale o If proceeds exceed the book value Gain looks like revenue expect credit o If proceeds are less than the book value Loss looks like expense expect debit Plant asset disposals Retirement of plant assets o No cash o No sale o Decrease accumulated deprecation debit o Decrease asset credit 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 Analyzing Plant Assets Return on asset Indicates the amount of net income generated by each dollar of assets Every dollar invested in assets gives you net income Asset Turnover Indicates how efficiently a company uses its assets to generate sales Asset turnover net sales average total assets Intangible Assets Intangible assets Are rights privileges and competitive advantages that result from ownership of longlived assets that do not possess physical substance Limited life or an indefinitely life Common types of intangibles o Patents copyrights franchises trademarks trade names goodwill Accounting for Intangibles Limited life intangibles o Amortize to expense deprecation o Credit asset account Indefinite life intangibles o No foreseeable limit on time the asset is expected to provide cash flows o No amortization Types of intangible assets Patents o Exclusive right to manufacture sell or otherwise control an invention for a period of 20 years from the date of grant o Capitalize costs of purchasing a patent and amortize over its 20 year life or its useful life whichever is shorter o Expense R and D costs in developing a patent o Legal fees incurred successfully defending a patent are capitalized to Patent account Expenditures research and development costs o Patents o Copyrights o New processes o New products Copyrights o Give the owner the exclusive right to reproduce and sell an artistic or published work o Granted for the life of the creator plus 70 years o Capitalize costs of acquiring and defending it o Amortized to expense over useful life Trademarks and trade names o Word phase jingle or symbol that identifies a particular enterprise or product Wheaties monopoly Sunkist Kleenex coca cola big mac and jeep o Legal protection for indefinite number of 20 year renewal periods o Capitalize acquisition costs o No amortization Franchises o Contractual arrangement between a franchisor and a franchisee Toyota Shell Subway and Marriott are franchises o Franchise or license with a limited life should be amortized to expense over the life of the franchise o Franchise with an indefinite life should be carried at cost and not amortized Goodwill o Includes exceptional management desirable location good customer relations skilled employees high quality products etc o Only recorded when an entire business is purchased o Goodwill is recorded as the excess of Purchase price over the fair market value FMV of the identifiable net assets acquired o Internally created goodwill should not be capitalized