Chapter 9 Fixed Assets and Intangible Assets Fixed Assets Used in normal operations Tangible Long term in nature Acquisition cost Purchase price all expenditures needed to prepare the asset for its intended use Revenue expenditure 1 Ordinary maintenance and repair Cash XXX Capital Expenditure Increases current income Increases taxes 1 Asset Improvements Adds Service value to asset Asset XXX Cash XXX 2 Extraordinary Repairs Extends assets useful life Accumulated Depreciation XXX Cash XXX Lease Operating Lease a simple rental agreement Capital Lease A leasing transaction that is recorded as a purchase by the Lessee the party granted the right to use the property Lessor the owner of the property lessee Depreciation Straight line Method periods Units of Output Method Step 1 production Step 2 Depreciation expense for a period cost Residual value useful life in Depreciation per Unit Cost Residual Value Total units of Depreciation Expense Depreciation per Unit x Total units of outputs used Double Declining Balance Method Step 1 Calculate straight line percent 1 useful life Step 2 Multiply it by 2 Step 3 Multiply that by initial cost Considered an Accelerated depreciation method since first year of assets is has the highest amount of depreciation and then it decreases Book Value Cost Accumulated depreciation Revising Depreciation Estimates 1 Calculate Book value of first year 2 Book value of first year new estimated residual value revised depreciation cost 3 Annual depreciation expense revised depreciation cost new years Discarding Fixed Assets An asset is fully depreciated and discarded Accumulated Depreciation initial cost Equipment Initial Cost An asset is fully depreciated and discarded Depreciation Expense XXX Accumulated Depreciation XXX Accumulated Depreciation XXX Loss on Disposal of Equipment XXX Equipment XXX Selling Fixed Assets Gain Loss Selling price Book Value Natural Resources Depletion Expense XXX Accumulated Deprecation XXX Patent Amortization expense cost useful life Amortization Expense XXX Patent XXX Step 1 determine Depletion Rate Cost of Resource Estimated total units Step 2 Depletion Expense Depletion Rate x Quantity Extracted Goodwill Exceptional managers good location skilled employees etc Recorded when a business is purchased Assets Liabilities Fixed Asset Turnover Ratio Net Sales Avg Book Value of Fixed Assets
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