Chap008
CHAPTER 8
REPORTING AND INTERPRETING
PROPERTY, PLANT, AND EQUIPMENT;
INTANGIBLES; AND NATURAL RESOURCES
PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
McGraw-Hill/Irwin
Copyright © 2014 by The McGraw-Hill Companies, Inc. All
UNDERSTANDING THE BUSINESS
Insufficient
capacity results in lost sales.
How much is enough?
Costly excess capacity reduces profits. 8-2
CLASSIFYING LONG-LIVED ASSETS
Actively Used in Operations
Expected to Benefit Future Periods
Tangible
Physical
Substance
Intangible
No Physical
Substance
8-3
CLASSIFYING LONG-LIVED ASSETS
Land
Assets subject to depreciation
Buildings and equipment
Furniture and fixtures
Natural resource assets subject to depletion
Mineral deposits and timber
Tangible
Physical
Substance
Definite life
Patents
Copyrights
Franchises
Indefinite life
Trademarks
Goodwill
Intangible
No Physical
Substance
8-4
FIXED ASSET TURNOVER
Net Sales (or Operating Revenues)
Fixed Asset
=
Turnover
Average Net Fixed Assets
This ratio measures the sales dollars generated by each dollar of fixed assets used.
During 2011, Southwest Airlines had $15,658 of operating revenues.
End-of-year fixed assets were $12,127 and beginning-of-year fixed assets were $10,578. (All numbers in millions.)
Fixed Asset
=
Turnover
$15,658
($10,578 + $12,127) ÷ 2
= 1.38
8-5
MEASURING AND RECORDING
ACQUISITION COST
Acquisition cost includes the purchase price and all expenditures needed to prepare the asset for its intended use.
Acquisition cost does not include financing charges and cash discounts.
Buildings
Buildings
•• Purchase
Purchase price price •• Renovation
Renovation and and repair repair costs costs •• Legal
Legal and and realty realty fees fees •• Title
Title fees fees 8-6
MEASURING AND RECORDING
ACQUISITION COST
Equipment
Equipment
•• Purchase
Purchase price price •• Installation
Installation costs costs ••
REPORTING AND INTERPRETING
PROPERTY, PLANT, AND EQUIPMENT;
INTANGIBLES; AND NATURAL RESOURCES
PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
McGraw-Hill/Irwin
Copyright © 2014 by The McGraw-Hill Companies, Inc. All
UNDERSTANDING THE BUSINESS
Insufficient
capacity results in lost sales.
How much is enough?
Costly excess capacity reduces profits. 8-2
CLASSIFYING LONG-LIVED ASSETS
Actively Used in Operations
Expected to Benefit Future Periods
Tangible
Physical
Substance
Intangible
No Physical
Substance
8-3
CLASSIFYING LONG-LIVED ASSETS
Land
Assets subject to depreciation
Buildings and equipment
Furniture and fixtures
Natural resource assets subject to depletion
Mineral deposits and timber
Tangible
Physical
Substance
Definite life
Patents
Copyrights
Franchises
Indefinite life
Trademarks
Goodwill
Intangible
No Physical
Substance
8-4
FIXED ASSET TURNOVER
Net Sales (or Operating Revenues)
Fixed Asset
=
Turnover
Average Net Fixed Assets
This ratio measures the sales dollars generated by each dollar of fixed assets used.
During 2011, Southwest Airlines had $15,658 of operating revenues.
End-of-year fixed assets were $12,127 and beginning-of-year fixed assets were $10,578. (All numbers in millions.)
Fixed Asset
=
Turnover
$15,658
($10,578 + $12,127) ÷ 2
= 1.38
8-5
MEASURING AND RECORDING
ACQUISITION COST
Acquisition cost includes the purchase price and all expenditures needed to prepare the asset for its intended use.
Acquisition cost does not include financing charges and cash discounts.
Buildings
Buildings
•• Purchase
Purchase price price •• Renovation
Renovation and and repair repair costs costs •• Legal
Legal and and realty realty fees fees •• Title
Title fees fees 8-6
MEASURING AND RECORDING
ACQUISITION COST
Equipment
Equipment
•• Purchase
Purchase price price •• Installation
Installation costs costs ••