9 Fixed &

Intangible Assets

FINANCIAL
ACCOUNTING
PowerPoint Presentation by
2ND EDITION Gail B. Wright
Professor of Accounting
BY Bryant University
© Copyright 2007 Thomson South-Western, a part

DUCHAC, REEVE, & WARREN of The Thomson Corporation. Thomson, the Star
Logo, and South-Western are trademarks used
herein under license.

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FIXED ASSETS
Fixed assets are
– Long term or relatively
permanent
– Tangible, i.e., physical
– Owned, used by business
– Not held for resale
Also called Property, Plant, &
Equipment (PPE)

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CLASSIFYING COSTS

Expenditures must be classified as

– Expenses
– Investments
– Fixed assets

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EXHIBIT 2
When is a purchased
item a fixed asset?
Yes No

Expense

Yes No

Fixed Investments
Assets

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ASSET COST

Cost of asset includes

– All amounts spent to get asset in place
– All amounts spent to get asset ready
to use

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EXERCISE 9-1a
Indicate which costs to acquire a printing press should be debited to
the asset.
Click
1. Freight button to
2. Special foundation skip this
exercise
3. Sales tax on purchase
4. Insurance while in transit
5. Fee paid for installation
6. New parts to replace damaged parts

Press “Enter” or click left mouse button for answer.

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CAPITAL & REVENUE

EXPENDITURES
Money spent on assets after they are
acquired are divided between
– Capital expenditures
– Improve asset
– Extend useful life
– Revenue expenditures
– Ordinary maintenance & repairs

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REVENUE EXPENDITURES

Revenue expenditures
– Are ordinary repairs & maintenance
– Benefit only current period
– Increase (debit) repairs &
maintenance expense

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CAPITAL EXPENDITURES

Capital expenditures
– Are asset improvement
– Benefit current & future periods
– Increase (debit) fixed asset

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EXERCISE 9-5a (partial)

Hicks incurred the following costs related to trucks and vans in
operating a delivery service. Identify the capital expenditures.

1. Replaced radio with new radio with greater range.

Click
2. Overhauled engine on 3-yr. old truck button to
3. Changed oil all trucks, vans skip this
exercise
4. Installed security systems
5. Changed radiator fluid on 4-yr. Old truck
6. Installed hydraulic lift

Press “Enter” or click left mouse button for answer.

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EXERCISE 9-5b (partial)

Hicks incurred the following costs related to trucks and vans in
operating a delivery service. Identify the revenue expenditures.

1. Replaced radio with new radio with greater range.

Click
2. Overhauled engine on 3-yr. old truck button to
3. Changed oil all trucks, vans skip this
exercise
4. Installed security systems
5. Changed radiator fluid on 4-yr. Old truck
6. Installed hydraulic lift

Press “Enter” or click left mouse button for answer.

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EXHIBIT 4

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DEPRECIATION METHODS

3 methods to calculate depreciation expense

– Straight-line depreciation
• Same amount of depreciation each year
– Units of production depreciation
• Depreciation varies with asset use
– Declining balance
• Accelerated method provides more depreciation in
earlier years

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STRAIGHT-LINE
DEPRECIATION

Depreciation expense =
(Cost – Residual value) /
Useful life

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UNITS-OF-PRODUCTION
DEPRECIATION

Depreciation expense =
{(Cost – Residual value)/ Productive activity} *
Current activity

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DECLINING-BALANCE
DEPRECIATION
For double-declining balance:

Depreciation expense =
2*(1/Life) * (Cost – Accumulated Depreciation)

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What happens when

estimates are revised?

Assume book value is

88,000 when residual
value revised to 8,000 and
remaining life extended to
8 years.
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REVISED DEPRECIATION

(Book value – Revised residual value) /

Remaining useful life
(88,000 – 8,000) / 8 yrs.
10,000 per year

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ASSET DISPOSAL

Assets can be
– Discarded
– Sold
First, bring depreciation
expense up to date

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INTANGIBLE ASSETS
Intangible assets are
– Long term or relatively
permanent
– Without physical properties
– Owned, used by business
– Not held for resale

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INTANGIBLE ASSETS:
Examples
Examples of intangible assets are
– Patents
– Copyrights, trademarks
– Goodwill
Cost of intangible assets is
amortized over useful (legal life)

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INTANGIBLE ASSETS:
Definitions
• Patent
– Exclusive right to produce, sell goods with 1 or more
unique features
• Copyright
– Exclusive to publish, sell literary, artistic, musical
composition
• Trademark
– Name, term, symbol used to identify business, product

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AMORTIZING COST
• Amortization
– Term used to match cost of intangible asset
against revenue over useful (legal) life
• Amortization similar to straight-line
depreciation
Amortization expense =
(Cost – Residual value) /
Useful life
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INTANGIBLE ASSET:
Goodwill
• Goodwill
– Arises when one business buys another
business
– Created when purchase price of business
greater than fair market value of net assets
– Not amortized; impaired value adjusted

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FINANCIAL UTILIZATION

Financial utilization measures efficient

revenue generation of operational assets
Fixed Asset Turnover =
Revenue/ Ave. Book Value Fixed Assets

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Never test the depth of the water with
both feet.
(Clones are people two)

If you think nobody cares if you're

alive, try missing a couple of car
payments.
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