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10-1 WELCOME TO MY CLASS 10-2 Chapter 10 Property, Plant, and Equipment and Intangible Assets: Acquisition and Disposition 10-3 Types of Operational Assets Actively Actively Used Used in in Operations Operations Expected Expected to to Benefit Benefit Future Future Periods Periods Tangible Tangible Property, Property, Plant, Plant, Equipment Equipment && Natural Natural Resources Resources Intangible Intangible No No Physical Physical Substance Substance 10-4 Costs to be Capitalized General General Rule Rule The The initial initial cost cost of of an an operational operational asset asset includes includes the the purchase purchase price price and and all all expenditures expenditures necessary necessary to to bring bring the the asset asset to to its its desired desired condition condition and and location location for for use use 10-5 Costs to be Capitalized Equipment Net Net purchase purchase price price Taxes Taxes Transportation Transportation costs costs Installation Installation costs costs Modification Modification to to building building necessary necessary to to install install equipment equipment Testing Testing and and trial trial runs runs 10-6 Costs to be Capitalized Land Purchase Purchase price price Real Real estate estate commissions commissions Attorney’s Attorney’s fees fees Title Title search search Title Title transfer transfer fees fees Title Title insurance insurance premiums premiums Removing Removing old old buildings buildings Land Land is is not not depreciable depreciable 10-7 Costs to be Capitalized Land Improvements Separately Separatelyidentifiable identifiable costs costsof of Driveways Driveways Parking Parkinglots lots Fencing Fencing Landscaping Landscaping Private Privateroads roads 10-8 Costs to be Capitalized Buildings Purchase Purchase price price Architectural Architectural fees fees Cost Cost of of permits permits Excavation Excavation costs costs Construction Construction costs costs 10-9 Costs to be Capitalized -Natural Resources Purchase Purchase price, price, exploration exploration and and development development costs costs of: of: Timber Timber Mineral Mineral deposits deposits Oil Oil and and gas gas reserves reserves 10-10 Asset Retirement Obligations Often Often encountered encountered with with natural natural resource resource extraction extraction when when the the land land must must be be restored restored to to aa useable useable condition condition Recognize Recognize as as aa liability liability and and aa corresponding corresponding increase increase in in the the related related asset asset Record Record at at fair fair value, value, usually usually the the present present value value of of future future cash cash outflows outflows associated associated with with the the reclamation reclamation or or restoration restoration 10-36 Dispositions On On June June30, 30,2013, 2013,MeLo, MeLo,Inc Inc sold sold equipment equipmentfor for $6,350 $6,350cash cash The The equipment equipmentwas waspurchased purchased on on January January1, 1,2008 2008at at aacost costof of $15,000 $15,000 The The asset assethad had aa useful usefullife lifeof of10 10years yearsand and no no salvage salvagevalue value MeLo MeLo last lastrecorded recorded depreciation depreciation on on the the equipment equipmenton on December December 31, 31,2012, 2012,its its year-end year-end Prepare Preparethe the journal journalentries entriesnecessary necessaryto to record recordthe the disposition disposition of of this thisequipment equipment 10-37 Dispositions Update depreciation to date of sale GENERAL JOURNAL Date Description June 30 Depreciation Expense Accumulated Depreciation ($15,000 ữ 10 years) ì ẵ = $750 Page PR Debit Credit 750 750 10-38 Dispositions Remove original cost of asset and accumulated depreciation from the books Record the gain or loss GENERAL JOURNAL Date Description June 30 Accumulated Depreciation Cash Loss on Sale Equipment ($15,000 ữ 10 years) ì 5ẵ years = $8,250 Page PR Debit Credit 8,250 6,350 400 15,000 10-39 EXCHANGE – OLD RULES Text book – Page 548 10-40 EXCHANGE – NEW RULES NEW RULES 10-41 Exchanges In In the the exchange exchange of of operational operational assets assets fair fair value value is is used used except except in in rare rare situations situations in in which which the the fair fair value value cannot cannot be be determined determined or or the the exchange exchange lacks lacks commercial commercial substance substance When When fair fair value value cannot cannot be be determined determined or or the the exchange exchange lacks lacks commercial commercial substance, substance, the the asset(s) asset(s) acquired acquired are are valued valued at at the the book book value value of of the the asset(s) asset(s) given given up, up, plus plus (or (or minus) minus) any any cash cash exchanged exchanged No No gain gain or or loss loss is is recognized recognized 10-42 Exchange Lacks Commercial Substance A A nonmonetary nonmonetary exchange exchange is is considered considered to to have have commercial commercial substance substance ifif the the company: company: expects expects aa change change in in future cash flows as a result result of of the the exchange, exchange, and and that that expected expected change change is is significant significant relative relative to to the the fair fair value value of of the the assets assets exchanged exchanged 10-43 Fair Value Not Determinable Matrix, Matrix, Inc Inc exchanges exchanges one one unique unique operational operational asset asset for for another another operational operational asset asset Due Due to to the the nature nature of of the the assets assets exchanged, exchanged, Matrix Matrix could could not not determine determine the the fair fair value value of of the the asset asset given given up up or or received received The The asset asset given given up up had had aa cost cost to to Matrix Matrix of of $600,000, $600,000, and and accumulated accumulated depreciation depreciation of of $400,000 $400,000 Matrix Matrix exchanged exchanged the the asset asset and and paid paid $100,000 $100,000 cash cash Let’s Let’s record record this this unusual unusual transaction transaction 10-44 Fair Value Not Determinable In In addition, addition, Matrix Matrix paid paid $100,000 $100,000 cash cash to to acquire acquire the the operational operational asset asset 10-45 Fair Value Not Determinable Matrix, Matrix, Inc Inc The The journal journal entry entry below below shows shows the the proper proper recording recording of of the the exchange exchange 10-46 Exchanges Matrix, Matrix, Inc Inc exchanged exchanged new new equipment equipment and and $10,000 $10,000 cash cash for for equipment equipment owned owned by by Float, Float, Inc Inc Below Below is is information information about about the the asset asset exchanged exchanged by by Matrix Matrix Record Record the the transaction transaction assuming assuming the the exchange exchange has has commercial commercial substance substance 10-47 Exchange Has Commercial Substance $205,000 fair value + $10,000 cash Exchange Does Not Have Commercial Substance 10-48 Equipment Equipment received received should should be be valued valued at at book book value value of of equipment equipment transferred transferred plus plus cash cash paid paid $200,000 book value + $10,000 cash 10-49 Review – Assets Exchange Amgen, Amgen,Co Co.exchanged exchanged similar similarequipment equipmentand and $10,000 $10,000 cash cashfor forequipment equipmentowned owned by byVersa, Versa,Inc Inc Using Usingthe theinformation informationbelow, below,record record the the exchange exchange on onthe the books booksof ofAmgen Amgenand and Versa Versa 10-50 End of Chapter 10 Homework Read the textbook Do all examples in text book Do homework
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