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2 characteristic of intangibles

lack physical existence, not financial instruments

when companies record purchased intangibles, they record

at cost

when company gets intangibles in exchange for something, they record

at fV

for internally created intangibles, companies usually only capitalize

direct costs

how do you amortize L-L intangibles

systematic charges

how to amortize I-L intangibles

you don't. test for impairment.

how do you treat purchase of LL intangible


how do you treat purchase of IL intangible


how do you treat internally created LL intangible


how do you treat internally created IL intangible


how do you test for LL intangible impairment

recoverability test then FV test

how do you test IL intangible impairment

FV test only

Examples of marketing-related intangibles

trademarks, Internet domain names, noncompetition agreements

what's the life of a trademark

indefinite, renewed every 10 years

Example of customer-related intangibles

customer list

example of artistic-related intangibles


examples of contract-related intangibles

franchise/licensing agreements, construction permits, broadcast rights

treat franchise stuff as

operating expense

examples of technology-related intangibles

patents, trade secrets

how long does a patent last

20 years

2 kinds of patents

product, process

what do you do with cost of defending copyrights/patents


is goodwill generated internally capitalized


when is goodwill recorded

when entire business is purchased

define goodwill

excess of cost over FV of NIA

what do you do when businesses are purchased for less than FV

record gain

do we amortize goodwill


fair value test

take fair value with goodwill subtract fair value without goodwill. result is the new goodwill amount.

only impair goodwill if

fv of company is less than bookvalue

how are impairments related to intangible assets reported in income

debit loss on impairment, credit the asset

do what to all costs related to the R&D area


depreciation is

a means of cost allocation

2 reasons for retiring assets

physical factors, economic factors

when do you report changes in depreciation estimates

in the current and prospective periods. no change in the past.

why don't we use LCM for impairments

difficult to arrive at FV for PPE

impairment loss

difference between the carrying amount and its fair value

impairment losses go in what section

other expenses and losses in the income from continuing operations

how to restore impairment for asset held for use

no impairment restoration

how to report asset held for sale

report at LCM or NRV

do you depreciate or amortize assets held for use


do you depreciate or amortize assets held for sale


2 features of natural resources

complete removal of asset, and the replacement of the asset only by an act of nature

4 factors of depletion base

acquisition cost, exploration costs, development costs, restoration costs

tangible equipment costs are or are not included in depletion base

are not

intangible development costs examples

tunnels, shafts, wells

intangible development costs are or are not included in the depletion base


depletion rate

total cost of natural resource - salvage value divided by number of units estimated in resource

journal entry for depletion

debit inventory, credit the resource

asset turnover ratio

net sales/average total assets

profit margin

net income/net sales


net income/average total assets

3 requirements for PPE

acquired for use in operations, long-term and depreciated, physical substance

do managers prefer to capitalize or expense


what is historical cost

cost of obtaining the asset and bringing it to the location and condition necessary for its use

Removal of old buildings is in what cost


what do you do with cash discounts for valuing PPE

use the net method - record asset at discounted price

how to value PPE purchased on a lump sum basis

use the fair value of the individual compared to fair value of the total then use book value of acquisition cost to find the value of the individual item

if transaction has commercial substance recognize

gains and losses immediately

if transaction is a monetary transaction recognize

gains and losses immediately

if transaction has no commercial substance

recognize partial gain or full loss

definition of monetary transaction

cash transfer is greater or equal to 25% of total value

what do you do with additions to assets

capitalize and depreciate

what makes a transaction have commercial substance

if future cash flows change as a result of the transaction

how to calculate recognized partial gain for transaction without substance with boot

(cash received/ cash received + fair value of other assets received) x total gain

a gain or loss is really a correction of

net income

entries for disposition

debit cash, debit acc dep, credit machinery, and then credit/debit loss as necessary

examples of involuntary conversion

fire flood theft

assets acquired by the issuance of equity securities are valued based on

their fair values or the fair value of the equity securities, whichever is more reasonably determined

donated assets are recorded at

fair value

the fixed-asset turnover ratio provides

the amount of sales generated per dollar of fixed assets

fixed-asset turnover ratio

sales/fixed assets

in a nonmonetary exchange of equipment with commercial substance, a gain is recognized when

the fair value of the equipment surrendered exceeds the book value of the equipment given up

when an exchange lacks commercial substance, record new asset at

book value plus any cash - not fair value

4 criteria to capitalize lease

title transfer, bargain purchase option, if term of lease is >75% of economic life of the asset, if pv of minimum lease payments is >90% of FMV of asset

lessor wants


lessee wants


what do you do with rearrangement and reinstallation costs

capitalize the new costs and amortize them over expected remaining life. remove the old installation costs, if known.

how do you treat maintenance-type repairs:

expense immediately

interest costs associated with land expenditures (when associated building is being constructed) can be capitalized to

the cost of the building

should interest revenue be netted against interest costs when capitalizing interest costs?



capitalize and depreciate

improvement =

better asset

replacement =

similar asset

improvements and replacements are capitalized if they

increase the future service potential of the asset

GAAP depreciation is not equal to tax depreciation. Difference in the timing of these deductions causes

book/tax differences

what do you do with an asset that can be used despite being fully depreciated

keep it on the books at historical cost - depreciation

Net identifiable assets

identifiable assets - identifiable liabilities

what do we do with goodwill when calculating NIA

ignore it because it is not identifiable

putting more into goodwill will lead to a better or worse ROA?


if we fail to record a gain on the acquisition of a company, we would be overvaluing our


how to account for start-up/individual costs?

expense as incurred

how to account for advertising costs?

usually as incurred or the first time the advertising takes place

if PPE is purchased in exchange for stock, use what value of the stock


when disposing of PPE, remember to record depreciation

up until point of disposal

GAAP requires what for gains/losses on conversion

have to be recognized

if an asset is used despite being fully depreciated, what do we do with it?

keep it on the books at historical cost - accumulated depreciation

Is goodwill part of RNOA?


goodwill is what kind of item?


weighted average interest rate

total interest/total principal

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