ACCTNG 2400 1st Edition Lecture 20 Outline of Last Lecture I. Operating Cycle EfficiencyII. Liquidity ratiosa. Inventory turnover ratiob. Receivable turnover ratioOutline of Current Lecture I. Chapter 9 – long-lived tangible and intangible assetsII. Acquisition of tangible assetsa. Basket purchaseIII. Maintenance costs – expenditures and accounting treatmentIV. Depreciation expensea. Measure and recordb. Depreciation methodsCurrent LectureAcquisition of tangible assets- Acquisition costs includes the purchase price- Costs to prepare the asset for its intended use:o Legal feeso Filing feeso Survey feeso Broker commissionso Appraisal feesBasket purchase - The total cost of a combined purchase of land and building is allocated in proportion to their relative market valuesMaintenance Costs Incurred During UseOrdinary repairs and maintenanceThese 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. o Architectural feeso Sales taxeso Transportation costso Installation costso Calibration costsCharacteristics:o Relatively small, recurring expenditures that maintain normal operating conditionso Do not increase productivityo Do not extend life beyond original estimateAccounting treatment:o EXPENSE (report as an expense on the income statement)Additions, replacements, and extraordinary repairsCharacteristicso Relatively large, infrequent expenditures such as major overhauls or replacements ofmajor componentso May extend useful lifeo May increase productivity or efficiencyAccounting treatment: o CAPITALIZE (report as an asset and depreciate)Depreciation ExpenseDepreciation is a cost allocation process that matches costs of operational assets with periods benefited by their use.o Depreciation expense (depreciation for the current year) goes on income statemento Accumulated depreciation (total depreciation to date for an asset) goes on balance sheetMeasure and Record3 items needed:1. Acquisition cost of the asset2. Estimated useful life – how long the company expects to use the asset3. Estimated residual value – expected cash value of asset at the end of its life Depreciable cost = asset’s cost – estimated residual valueDepreciation Methods1. Straight line2. Units-of-production3. Declining
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