Week 5
Long-lived assets: * building(s), * land * machinery * furniture * intangible assets such as goodwill, patents, trademarks, franchises
Because long-lived assets occupy a significant portion of the balance-sheet total in many businesses, it is imperative that the cost of purchasing these assets is accurately determined and reported on the financial statements. Like all assets, long-lived assets are recorded at their acquisition prices and reported at historical costs (less accumulated depreciation, if applicable).
Cost included in Asset Cost: The cost of a long-lived asset consists of all expenditures that are reasonable and necessary to acquire the asset, bring it to its desired location (in case of machines, equipment, and furniture), and make it ready for its intended use * Purchase Price * Sales Tax * Installation Costs * Freight/Shipping cost & Insurance while it is being acquired * Legal Fee * Repairs/Reconditioning * Not the repair cost that result as damage while installing * Testing * Modifying the asset * Legal prints
Capital Cost is debited to an asset account instead of expense account
Intangible assets are recorded at their acquisition costs, as well. Internally developed intangibles are not recorded in the books; only purchased intangible assets are recorded. That said, however, the costs of registering and successfully defending an intangible asset are recorded in the books. The cost of unsuccessful legal defense of an intangible asset is expensed when incurred.
What is depreciation: Transferring of an assets cost to expense over its useful life.
Depreciation Journal entry: * Dr. – Depreciation Expense account * Cr. – Accumulated Depreciation (This is a contra asset account)
Depreciation Methods: 1. Straight Line 2. Units of Production (or Units of