Technology
Chapter 7 Intro - Long-Term Assets
In this episode, Professor Stephanie Yuffimub introduces Chapter 7 on long-term assets, focusing on property, plant, and equipment, as well as intangible assets. She discusses the accounting treatment...
Chapter 7 Intro - Long-Term Assets
Technology •
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Interactive Transcript
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Hi and good evening. This is Stephanie Yuffimub. I am the Agent Accounting Professor at Wake
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Tech Community College. And in this session, we will be covering Chapter 7 long-term assets.
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As an overview for tonight's class, I wanted to kind of talk about the key discussion
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points we'll be going over this evening. First, we're going to be talking about the major
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types of property, plant and equipment. Most accountants would call this fixed assets
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or capital assets. What we're talking about here are items that the organization purchases
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and the intent is they're going to use it for one year or more and typically the value
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is significant. For large organizations, the value may need to be $1,000, $5,000 or more for
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smaller organizations that capitalization threshold may be lower. The other topic we'll be discussing
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this evening is identifying the major types of intangible assets. So what we are talking about when
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you talk about intangible assets are things that aren't tangible, right, which is thus the
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name intangible. Some things that you might be able to relate to are things like patents.
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So when an inventor gets a patent on something, right, that's not a physical asset, but there
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is value to that because no one else can create that item because they have a patent on
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it. Other items that might fall under intangibles are things like goodwill. And what do we mean
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when we say goodwill? Well, if I went to the Coca-Cola Bodling Company and told them I wanted
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to purchase their organization and I'm going to make up numbers here, let's say their organization
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is worth $500 million and I offered to pay $600 million for their company. What accountants
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would say the differential between what the assets were valued at versus what I paid, they
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would call goodwill. In other words, I'm paying for the value of the image or the brand of that
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company in addition to the tangible assets. So that's another good example of an intangible asset.
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Another example would be something like a copyright or a trademark. So in other words, let's continue
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with the Coca-Cola Bodling Company, right? I can't just go around and use their logo on something,
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right? I would be infringing upon their copyright or their trademark. And again, so again, not something
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that's tangible, not something I can see feel or touch, but definitely something that has value
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to the organization and could be recorded as a long-term asset on their balance sheet.
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And then the next thing we'll be talking about this evening is describing the accounting
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treatment of expenditures after acquisition. So once I have purchased either an intangible asset
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or a tangible one, i.e. a car, truck, or a building, or some land, how do I account for that going
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forward? What does GAP require me to do? And so we'll be getting into things like depreciation
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and amortization and impairment, things like that. And so when I'm talking about depreciation,
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I'm saying, okay, I purchased an asset and for most of you, a lot of you probably have a car,
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right? And you're probably very aware that once you drive that car off of the lot at the dealership,
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it no longer is of the same value it was when it was considered new. It's used now, right? And so
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what we call that differential between what you paid for and what it's now worth is depreciation,
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right? And from a GAP perspective, we wouldn't necessarily true up the value of the asset to what
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you could sell it for today. That's not really the purpose. For GAP purposes, what we're trying to say is,
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as you use that asset, you're using up part of the value of that asset. So in other words, if you
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have a machine that you purchased and you believe that it has what we call a useful life,
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in other words, you think that machine should last you five years or ten years or whatever.
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The case may be given how long this machine typically is in operation in other organizations.
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Then what you would do is you would divide the value of that, the cost of that asset by that
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useful life and then you would depreciate it monthly based upon that expenditure so that at the
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end of its life, it would be valued at zero dollars or at what we call a residual book value
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that you maybe could sell it for parts or maybe you could sell it for some other purpose.
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So again, these are all topics that we're going to be covering tonight in our lecture on chapter
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7 and I can't wait to see you and I hope you found this podcast helpful. Thank you.