10+Other+Assets.pptx sma advent pasir putih

Financial Accounting
Module 10: Other Assets

Module Learning Outcomes
Describe the accounting and reporting of other current and noncurrent assets
10.1: Accounting for natural resources
10.2: Accounting for intangibles
10.3: Accounting for other assets
10.4: Financial Presentation of Other Assets

Learning Outcomes: Natural Resources
10.1: Accounting for natural resources
10.1.1: Understand the nature of depletable assets
10.1.2: Compute depletion for a given cost, residual value, and estimated
output
10.1.3: Journalize adjusting entries for the recording of depletion

Understand the Nature of Depletable Assets
Balance Sheet
• Classify natural resources as a separate group
among noncurrent assets under headings such as
“Timber Stands” and “Oil Reserves”.
• Report natural resources at total cost less
accumulated depletion. (Accumulated depletion
is similar to the accumulated depreciation used for
plant assets.)
General Ledger
• Record natural resources in at their cost of
acquisition plus exploration and development costs
and then we record an amount called “depletion”
that is much like depreciation expense.
Analysis
• When analyzing the financial condition of
companies owning natural resources, exercise
caution because the historical costs reported for
the natural resources may be only a small fraction
of their current value.

Compute Depletion for a Given Cost, Residual
Value, and Estimated Output
The calculation of depletion involves these steps:
• Compute a depletion base.
• Compute a unit depletion rate.
• Charge depletion based on units of usage.
The resulting net carrying amount of natural resources still on the books of a
business does not necessarily reflect the market value of the underlying natural
resources. Rather, the amount simply reflects an ongoing reduction in the
amount of the original recorded cost of the natural resources.

Compute Depletion for a Given Cost, Residual
Value, and Estimated Output
The depletion base is the asset that is to be depleted. It is comprised of the
following four types of costs:
• Acquisition costs.
• Exploration costs.
• Development costs.
• Restoration costs.
To compute a unit depletion rate, subtract the salvage value of the asset from
the depletion base and divide it by the total number of measurement units that
you expect to recover. The formula for the unit depletion rate is:
(Depletion base – Salvage value) ÷ Total units to be recovered.

Journalize Adjusting Entries for the Recording of
Depletion
By crediting the Accumulated Depletion account
instead of the asset account (E.g. Coal Mine Assets),
continue to report the original cost of the entire
natural resource on the financial statements.
Statement users can see the percentage of the
resource that has been removed.
Total cost of the resource available, we combine this
depletion cost with other extraction, mining, or
removal costs. We can assign this total cost to either
the cost of natural resources sold or the inventory of
the natural resource still on hand.
Expense all, some, or none of the depletion and
removal costs recognized in an accounting period,
depending on the portion sold.
If all of the resource is sold, expense all of the
depletion and removal costs. The cost of any portion
not yet sold is part of the cost of inventory.

A copper mining company purchase the rights to the minerals in a 10 acre
piece of land for $3,000,000 and incurred additional $75,000 to develop the
mine. The company expects the estimated salvage value to be 0. The mining
company estimates the capacity of the mine at 500,000 tons of copper. The first
month, 43,000 tons of copper is excavated and 31,000 tons sold. What is the
depletion expense on the mine for its first month of copper extraction?
A. $258,000
B. $73,920
C. $264,450
D. $72,000
Practice Question 1

Learning Outcomes: Intangible Assets
10.2: Accounting for intangibles
10.2.1: Define intangible assets
10.2.2: Compute amortization expense on amortizable assets
10.2.3: Record amortization of intangible assets

Define Intangible Assets
Intangible assets: identifiable non-monetary assets that cannot be seen, touched, or
physically measured. Intangible assets are created through time and effort and are
identifiable as a separate asset.
• Valuable because of the advantages or exclusive privileges and rights they provide to a business.
• Generally arise from two sources:
• exclusive privileges granted by governmental authority or by legal contract, such as
patents, copyrights, franchises, trademarks and trade names, and leases; and
• superior entrepreneurial capacity or management know-how and customer loyalty,
which is called goodwill.
• All are nonphysical, but not all nonphysical assets are intangibles. For example, accounts
receivable and prepaid expenses are nonphysical, yet classified as current assets rather than
intangible assets.
• Generally both nonphysical and noncurrent; they appear in a separate long-term section of the
balance sheet entitled “Intangible assets.”
• Goodwill
• Patents
• Copyrights
• Franchise Agreements
• Trademarks
• R & D Costs

Compute Amortization Expense on Amortizable
Assets
Amortization is the systematic write-off of the cost of an intangible asset to expense. A portion
of an intangible asset’s cost is allocated to each accounting period in the economic (useful)
life of the asset.

Record Amortization of Intangible Assets
Patent is a right granted by the federal government.
• Exclusive right that enables the owner to manufacture, sell,
lease, or otherwise benefit from an invention for a limited period.
• The value of a patent lies in its ability to produce revenue.
Patents have a legal life of 14-20 years.
Purchasing a Patent
• A company records it in the Patents account at cost and debits
the Patents account for the cost of the first successful defense of
the patent in lawsuits (assuming an outside law firm was hired
rather than using internal legal staff). Such a lawsuit establishes
the validity of the patent and thereby increases its service
potential.
• In addition, the firm debits the cost of any competing patents
purchased to ensure the revenue-generating capability of its
own patent to the Patents account.

Other Current and Noncurrent Assets

Learning Outcomes: Other Current and
Noncurrent Assets
10.3: Accounting for other assets
10.3.1: Demonstrate an understanding of accounting for short-term
investments
10.3.2: Demonstrate an understanding of accounting for long-term investments
10.3.3: Identify other common current and noncurrent assets

Demonstrate an Understanding of Accounting for
Short-term Investments

Long-Term Investments
When a company owns less than 50% of the outstanding stock of another company as
a long-term investment, the percentage of ownership determines whether to use the
cost or equity method.
● A purchasing company owning less than 20% of the outstanding stock of the
investee company, and does not exercise significant influence over it, uses the
cost method.
● A purchasing company owning from 20% to 50% of the outstanding stock of the
investee company or owns less than 20%, but still exercises significant influence
over it, uses the equity method.
Firms use the cost method for all short-term stock investments and almost all long-term
stock investments of less than 20%. For investments of more than 50%, they use either the
cost or equity method.

If an investor has more than 50% holding in a company, it is said to have
control over the investee. The investor is called the parent and the investee is
called the subsidiary and the investment is accounted for by combining all
the accounts of the parent and the subsidiary, eliminating any intercompany
transactions.
These “consolidated” financial statements combine the revenues and
expenses of all the companies, and a portion of the net income attributable
to the other investors, called the minority interest, is separately reported.
Similarly, the consolidated balance sheet combines assets and liabilities of
the parent and the subsidiary and separately mentions the equity
attributable to minority interest.

Holding ≤ 20% 20–50% ≥ 50%
Accounting method Fair value method Equity method Consolidation
Changes in fair value
Recognized in
income statement
Ignored Ignored
Net income of the
investee
Ignored
Proportionately recognized
in income statement;
increases carrying value of
investment
Not applicable
Dividends
Recognized income
statement
Proportionately recognized
to reduce the carrying
value
Not applicable
Revenues, expenses,
assets and liabilities
Not applicable Not applicable
Revenues, expenses, assets,
and liabilities are combined;
minority interest is recognized
when holding is less than
100%.

Identify Other Common Noncurrent Assets
Items classified as Other Noncurrent
Assets:
• Rights Under Lease
• Notes Receivable

Learning Outcomes: Reporting Other Assets
10.4: Financial Presentation of Other Assets
10.4.1: Demonstrate proper financial statement presentation and disclosures
related to natural resources
related to intangible assets
related to other current and noncurrent assets

Demonstrate Proper Financial Statement Presentation
and Disclosures Related to Natural Resources
Resource Development Expenses
Costs in resource exploration, evaluation and development occur during the different phases of resource
development projects. Exploration costs incurred before obtaining legal rights to explore an area are
generally expensed as incurred. After obtaining legal rights, exploration costs are expensed in areas with
uncertainty about obtaining proven resources. In areas where there is substantial knowledge about the area
and consider it probable to obtain commercially viable proven resources, exploration and evaluation costs
are capitalized.
Technical feasibility studies if obtained, resource evaluation expenses are capitalized when the study
demonstrates proven or probable resources for which future economic returns are expected, while costs for
projects not considered viable are expensed. Development costs necessary to bring the property to
commercial production or increase the capacity or useful life are capitalized. Costs to maintain the
production capacity in a property under production are expensed as incurred.
Capitalized resource costs are depleted using the units-of-production method. Resource development assets
are evaluated for impairment when events or changes in circumstances indicate that the carrying amount
may not be recoverable.

and Disclosures Related to Intangible Assets
Here is the relevant checklist from the AICPA November 2017 Financial Reporting Framework for Small- and Medium-
Sized Entities Presentation and Disclosure Checklist:
Intangible Assets [chapter 13] Presentation
1. Has the entity presented the aggregate amount of goodwill as a separate line item in the entity’s statement
of financial position? [13.62]
2. Has the entity aggregated and presented intangible assets as a separate line item in the entity’s statement of
financial position? [13.63]
Disclosure
3. Has the entity disclosed the following information:
● The carrying amount in total and by major intangible asset class?
● The aggregate amortization expense for the period?
● The amortization method used, including the amortization period or rate, by major intangible asset class?
● The accounting policy for internally generated intangible assets, including the treatment of development costs,
whether expensed or capitalized? [13.64]
2. If the entity has incurred expenditure on start-up costs, has the entity disclosed the policy for accounting for those
costs? [13.66]

and Disclosures to Other Current and Noncurrent Assets
From the AICPA November 2017 Financial Reporting Framework for Small- and Medium-Sized Entities Presentation
and Disclosure Checklist:
Equity, Debt, and Other Investments [chapter 11] Presentation
1. Has the entity presented the following separately on the statement of financial position or in the notes to the financial statements:
a. Investments in companies subject to significant influence accounted for using the equity method?
b. Other investments accounted for at cost?
c. Equity and debt investments held-for-sale? [11.20]
2. Has the entity presented separately in the statement of operations or in the notes to the financial statements:
a. Income from investments in companies subject to significant influence accounted for using the equity method?
b. Income from other investments accounted for at cost?
c. Equity and debt investments held-for-sale? [11.21]
3. Has the entity grouped investments reported on the statement of financial position and investment income reported in the statement
of operations in the same way? [11.22]
4. The FRF for SMEs accounting framework requires that equity method investees normally should follow the same basis of accounting
(FRF for SMEs accounting framework) as the investor. Accordingly, have the financial statements of equity- method investees been
adjusted, if necessary, to conform with standards in the framework, unless it is impracticable to do so? [11.05]
5. Has the entity’s proportionate share of any discontinued operations, changes in accounting policy, corrections of errors relating to
prior period financial statements, or capital transactions of an equity-method investee presented and disclosed separately,
according to its nature, in the entity’s financial statements? [11.13]

and Disclosures to Other Current and Noncurrent Assets
Disclosure
1. Has the entity disclosed the basis used to account for investments? [11.23]
2. When the fiscal periods of an investor and an investee are not the same and the equity
method is used to account for the investee, has the entity disclosed events relating to, or
transactions of, the investee that have occurred during the intervening period and
significantly affect the financial position or results of operations of the investor? (This disclosure
is not necessary if these events or transactions are recorded in the financial statements.)
[11.24]
3. Other than for investments held for sale, has the entity disclosed the name and description of
each significant investment, including the carrying amounts, and proportion of ownership
interests held in each investment? [11.25]
In the following footnote excerpts from Albemarle Corporation’s 2019 annual report, see if you can
find the required disclosures with regard to other current assets, particularly investments.

Zango, Inc. has multiple patents for toy designs and goodwill to be disclosed on
its financial statements. Zango, Inc asks you to consult with them on the proper
way to report these intangible assets. You tell them, patents, goodwill and other
intangible assets are to be reported on the financial statements as:
A. Noncurrent equity before Bonds.
B. Noncurrent assets after PP&E.
C. Current assets after cash.
D. Noncurrent assets after inventory.
Practice Question 2

Quick Review
• What is the nature of depletable assets?
• How are depletion for a given cost, residual value, and estimated output
calculated?
• When and how are adjusting entries for the recording of depletion
recorded?
• What is the definition of intangible assets?
• How is amortization expense on amortizable assets computed?
• How are amortization of intangible assets recorded?

More Quick Review
• What does accounting for short-term investments consist of?
• What is accounting for long-term investments like?
• What are other common current and noncurrent assets?
• How are proper financial statement presentations and disclosures
related to natural resources?
related to intangible assets?
related to other current and noncurrent assets?

10+Other+Assets.pptx sma advent pasir putih

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