ChaLonglivedAsses财务报表,加州大学MBA

Short-lived

and

Long-lived

AssetsShort-lived

assetsOn

Jan.

1,

buy

insurance

coverage

for

theyear,and

use

it

up

by

Dec.

31.

In

this

case,

the

assetonly

lives

within

a

year

and

the

expenditure

on

theinsurance

coverage

becomes

expense

right

away.Inventory

lives

between

the

day

of

purchase

andthe

day

of

being

sold.

The

expenditure

oninventory

becomes

expense

when

inventory

is

sold.Short-lived

and

Long-lived

AssetsLong-lived

assetsProduction

equipments

are

used

for

manyyears,they

long

live.The

expenditure

on

equipmentsbecomes

expenses

gradually（缓慢地）year

afteryear.If

the

expenditure

becomes

expenses

over

manyyears,

a

challenging

question

is

that

how

weallocate

the

total

expenditure

into

expenses

amongthese

years.And

how

we

allocate

affects

net

income

andtotalassets

of

these

years.Long-lived

AssetsIncome

StatementRevenuesCOGSDepreciation

expenses（折旧费用）……Net

IncomeBalance

SheetAssetsCash

A/RInventoryProperty,

plantsandequipments…Long-lived

Assets-

someterminologiesAcquisition

value

of

asset

（获取价值）:allexpenditures

occurred

to

put

the

asset

ready

foruse.For

an

equipment,it

includes:price

paid

tomanufacture,transportation

fees,fees

paid

totechnicians

to

adjust

the

equipment,expenditures

to

build

a

concrete

base

for

theequipment,…Salvage

value

(residualvalue)（残留价值）:Whenthe

company

no

longer

needs

the

equipment,themoney

it

gets

for

disposing

the

equipment.If

itsells

the

equipment,the

money

it

receives

frombuyer

net

of

any

selling

cost

is

salvage

value;ifit

destroys

the

equipment,salvage

value

is……?Long-lived

Assets-

someterminologies

Asset’s

useful

life:

number

of

years

that

theasset

is

used

in

production.

An

machine

mayhave

useful

life

of

5

years,

while

anintangible

asset

(e.g.,

patent)

may

haveuseful

life

of

40years.Depreciation:

the

process

of

allocating

thedepreciation

base

over

the

years

of

theasset’s

usefullife.Long-lived

Assets-

someterminologiesDepreciation

base:

Acquisition

value

minussalvage

value.

This

amount

will

be

allocated

overthe

years

of

the

asset’s

usefullife.Depreciation

expense:

the

amount

ofdeprecationbase

that

is

allocated

into

a

particularyear.Amortization

expense:

deprecation

expense

forintangible

assetsDepletion

expense:

depreciation

expensefornatural

resource

assets,

such

as

gold

mine.Depreciation

methodMarkam

Corp

acquires

a

new

machine

costing$20,000. The

firm

expects

to

use

the

machine

for5

years

and

that

the

salvage

value

will

be$2,000.Depreciation

base

=

$20,000

-$2,000=

$18,000Depreciation

method

for

financial

reportingpurposeStraight-line

methodAccelerated

methodSum-of-the-years’-digits

methodDouble-declining

method(DDB)Straight

Line

DepreciationAllocate

the

depreciation

base

equally

among

the

years

ofuseful

life,

in

this

case,

it

is

fiveyears.The

straight

line

rate

would

be

1/(

5

years)

or

20%

per

yearAccelerated

depreciation:

Sum

of

Years’Digits

MethodDepreciation

charge

is

calculated

as

a

variableratetimes

depreciation

base.The

variable

rateis

equal

to

the

number

ofyears

remaining

(including

the

current

year)divided

by

the

sum

of

the

years’

digitsThe

sum

of

the

years’

digits

is

the

sum

of

thenumbers

1,

2,

3,

…,

up

to

and

including

the

lastyear

of

useful

lifeFor

a

5

year

useful

life,

the

sum

is1+2+3+4+5=

15Accelerated

depreciation:

Sum

of

Years’Digits

MethodDepreciation

base:

$20,000

-

$2,000

=$18,000The

sum

of

the

years’

digits

is

1+2+3+4+5

=

15.The

depreciation

rate

is

the

remaining

years

/

the

sum

of

theyears’ digitsDepreciationCharge(rate*basis)Accelerated

depreciation-double

decliningbalance

methodDepreciation

charge

is

calculated

as

a

fixed

rate

times

the

netbook

value

of

theassetNet

book

value

is

acquisition

value

reduced

byaccumulated

depreciation

but

NOT

reduced

by

salvagevalueThis

is

one

of

the

very

rare

methods

that

does

notsubtract

salvage

valueThe

reason

is

that

the

method

produces

decliningdepreciation

charges

and

when

the

net

book

value

isequal

to

salvage,

no

further

depreciation

is

taken.So

this

method

does

reduce

the

net

book

value

tosalvageThe

fixed

rate

must

be

greater

than

the

straight

line

rate

forthe

depreciation

to

be

acceleratedAccelerated

depreciation-double

decliningbalance

methodThe

straight

line

rate

would

be

1/(

5

years)

or

20%Double

declining

balance

uses

a

fixed

rate

of

twice

thestraight

line

rate,

or

40%$2,320Impact

of

different

methods

on

I/S

and

B/SYearDep.

Exp.-SLDep.Exp.-Sum-of-digitsEnding

netasset

bookvalue

-

SLEnding

netasset

bookvalue

–sum-of-digits1$3,600$6,000$16,400$14,00023,6004,80012,8009,20033,6003,6009,2005,60043,6002,4005,6003,20053,6001,2002,0002,000Totals$18,000$18,000TimeSDAEAcquisition

cost-salvageNDep.expenseN-no

depreciation;

A-accelerated

depreciation;

S-straight

lineDepreciation;

D-decelerated

depreciation;

E-immediate

expensingTake-awayDifferentdepreciationmethodsendupwithdifferentdepreciationexpenses.Butovertheentireusefullifeoftheasset,c迷mbineddepreciationexpensesarethesame(equaltodepreciationbase)regardlessofthemethod.Thedepreciationprocessisaprocessofcostallocation,nota随declineinthevalueoftheasset.The(market)valueoftheassetmayincreaseordecreaseduringtheusefullifeoftheasset,butdepreciationprocesswillgoonasifnochangehasoccurred.Depreciation-theaccountingprocessusingSLWhenpurchasethemachine,Dr.Machine20,000Cr.Cash20,000Dec.31ofyear1Dr.Depreciationexpense3,600Cr.Accumulateddepreciation3,600Dec.31ofyear2Dr.Depreciationexpense3,600Cr.Accumulateddepreciation3,600Mac化hi水ne羞20,背00偏0Acc页um四ul榨at昏ed藏Dep渣re岗ci齿at也io挤n

3,片600针3,错600猜Depreciation-theaccountingprocessusingSLYea疯r1鼻B劳/意S…Mac选hi烫ne促斧20,墙0凳00Les理sA掉c绸c.吼D寇ep踢.3歌,侦6脾00Net屑选mac阔hi蜜ne跑:1泡6臭,4稍00蹄…Yea瓣r2纯B亮/统S…Mac怖hi果ne央返20,鱼0语00Les单sA日c库c.洁D轻ep卧.7杯,尺2夜00Net慨砍mac跨hi骆ne烘:1矛2灾,凡800者…Earningsmanagementthroughlong-livedassetsThroughChoosingdepreciationmethodThroughestimatingusefullifeandsalvagevalueThroughchangingusefullifeand/orsalvagevalueestimatesinthemiddleofuseThroughtakingimpairmentchargesThroughChoosingdepreciationmethodEMthroughswitchingbetweendepreciationmethodsisdifficult.Ifafirmisusingaccelerateddepreciationmethod,andw anttoswitchtostraight-linemethodtoboostearnings,t henthefirmmust房诚haveassetsintheearlystageoftheirli fe.Auditorswon’tallowfirmstoswitchoften.ThroughestimatingandchangingusefullifeandsalvagevalueAneasierwaytodoEMthroughlong-livedassetsistomakeestimatesbeforetheasset房诚isputtouse,orchangeestimatesofusefullifeandsalvagevaluewhiletheassetisinuse.Afterall,whoisinthebestpositiontomaketheseestimates?Thecompanymanagement!Similartotheexampleofestimatingbad-debtexpense,asmallchangeintheseestimatescouldresultinalargechangeinnetincome.S.Ba楼su199鼓7,怜J办.o绣f汪A籍cc遇o捎unt朋i班ngAnd怀坏Ec星ono隔mi划cs近The突b趟ad就n辫e工ws,缓匪whe小nu楼s陵ef腿ul亏l户if处eIss蓝死hor怜te陕ne呼db锈y索3汇y旁ea谷rs裁,Are虏r仔ec岩o盼gni辱ze算di志n妻t淋he裙4thyea逗ra昌l嘱la足t恳勿onc板eFol选l歌owi钟ng蛾c雄on摧se熄rv默at援iv网epri号nc庄ip良le昂ThroughtakingimpairmentchargesUptonow,wehaveassumedthattherealvalueoftheassetsdoesnotchangeduringthelifeoftheassets.Sojudgmentisexercisedonestimatingusefullifeandsalvagevalue.Buttherealvalueofthelong-livedassetsdoeschangeovertime.Valuechangeoflong-livedassetsThevalueoflong-livedassetsmayincrease:1)Nearapieceofland,aninter-statehighwayisbuilt;2)Themarketconditionchanges,andtheproductsproducedbyatypeofmachinesellagain,althoughthemachinehasbeenfullydepreciated.Valuechangeoflong-livedassetsThevalueoflong-livedassetsmaydecrease:1)Thehighwayonpreciousslideisnotbuilt;2)Obsolescence:Anewinventionleadstoanewmachinethatisbetterthantheoldonebothtechnologicallyandeconomically;Newgenerationofcomputerscomeouttoreplaceoldgenerationofcomputers;Anewproductsubstitutestheproductmanufacturedbyatypeofmachine.Howtorecognizevalue-changesoflong-livedassets?GAAPdoesnotallowfirmstorecognizeincreasesinthevalueoflong-livedassetsGAAPallowsfirmstorecognizedecreasesinthevalueoflong-livedassets,andfollowingconservativeprinciple,thefirmshavetorecognizethedecreasesallatonce.Thedecreaserecognizediscalledimpairmentloss.EMthroughtakingimpairmentlossItisappropriatetotakeimpairmentlossiftheassetisindeedimpaired;however,manycompaniesusethisopportunitytomanageearnings.Theideaisthattakingimpairmentlossinayearresultsinverylowearnings;butfutureearningswillbecomebetterbecausenoorlessdepreciationexpensesneedtobetaken.(remembertheSearsstorywithexcessivebad-debtexpense?)Ti嫂meNet召inc双o跃meNot断t色ak努in定gImp摔ai握r锋men兔tlos扯sTak咱i洞ngimp胳ai接r拦men谋tlos仙sAss屋u循mi旦ngt队h村er鸭ei惊s钱浑noRea幸li即m恨pa肥ir球me控nt犁EMthroughtakingimpairmentlossFurthermore,companiestendtoemphasizetoinvestorsearningsfromcontinuingoperations,whichdonotincludetheimpairmentloss(decreaseinearnings)intheimpairmentyear,butdoincludethebenefits(increaseinearnings)infutureyears.Managementachievesawin-winscenario.TakinganimpairmentforEMpurposesometimesarereferredtoasa“bigbath”,a“write-off”;a“write-down”,“clearingthedeck”.VariationsofImpairmentChargesAssetswrite-downontangibleassetssuchasbuildings,machines,equipments,etc.AcquiredR&DMerger-relatedintangibleassetsRestructuringchargesLookwhoispracticingit:theonetheonlyAOL!AOLearnsrevenuesfrommembersubscription.Itspendsmoneytolurenewsubscribers.AOL,before1996,capitaliz组estheseexpenditures(assubscriber-acquisitioncosts,along-livedassetaccount)onthegroundthatonceacustomersignsup,itwillstayforafewyears,sotheexpendituresgeneratequantifiablefuturebenefits.Therefore,before1996,AOLearningswerehigherthanifithadexpensedtheseexpenditures.Lookwhoispracticingit:theonetheonlyAOL!Fore劈燕xample,in1996,reportedearningsis47centspershare;butifAOLdoesnotcapitalizethesubscriber-acquisitionexpenditures,earningswouldbealossof90cents.Lookwhoispracticingit:theonetheonlyAOL!Butinfiscalfirstquarterof1997,AOLreversesitspolicyonsubscriptionexpenditures.Ittakesa$385millions(impairment)chargestowrite-offsubscriber-acquisitioncosts;andstarttoexpensetheseexpendituresfrom1997.Theeffect,1997earningswillbeverylow,butinfutureyears,A信OLdoesnottakedepreciationexpensestosubscriber-acquisitioncosts,whichresultsinhigherfutureearnings.RetirementofAssetsWhentheassetisremovedfromservice,eithersoldordisposed,theaccountsneedtoreflectthischange.Therearethreeadjustments:Theassetaccountmustbeclosed(removed)Theaccumulateddepreciationaccountforthatassetmustalsobeclosed(removed)Andanygainorlossonretirementneedstoberecognized.Ifthedepreciationschedulewasperfect,theassetvaluelesstheaccumulateddepreciationwouldequalexactlythesalvagevalue.Differencesgiverisetoagain(ifacredit)oraloss(ifadebit).RetirementofAssetsDr.cash(receivedorasset)$1,500Dr.accum.depr(toremovetheaccount)18,000Dr.lossonretirement(plug)500Cr.equipment(toremovetheasset)20,000Earningsmanagementthroughassetsales(recalltheinventorywrite-downEMtricks？)Similarly,ifthecompanyhasabadoperatingearningsyear,itmaysellsomenon-essentialassetstorealizelargeamountofgainstoboostnetincome.Ofcourse,thecurrentmarketpriceoftheassetsmustbegreaterthantheirbookvaluestorealizegainsfromsales.IntangibleAssetsandAmortizationAssetsmayprovidefuturebenefitswithouthavingphysicalform;forexample,apatentorcopyright.Suchassetsarecalledintangibleassets.Intangibleassetsmayhavealimitedlife.Patentsexpireafter20yearsintheU.S.Intangibleassetsarereducedinvalueinrecognitionofthislimitedlife.Therevaluationissimilartodepreciationbutiscalledamortization.Specificexamplesofintangiblesare a.Researchanddevelopment b.Patentsc.Advertisingd.GoodwillIntangibleAssetsandAmortizationAccountantsfacetwokeyissueswithregardstointangibleassets:Havetheexpendituresmadetoacquireordeveloptheintangibleassetgeneratedsufficientfuturebenefitsthattheexpendituresshouldbecapitalized?Havetheexpendituresproducednofuturebenefitforthefirmorbenefitssohardtoquantifyormeasurethatthetheexpendituresshouldbeexpensed.Intangiblesaregenerallyamortizedonastraightlinebasisbasedontime.ResearchandDevelopment(R&D)Researchanddevelopmentareexpendituresforknowledgethatmayincreasethecompetitivenessofthefirminthefuture.Examplesincludethedevelopmentofnewpharmaceuticals,newtechnologies,newmanufacturingmethods,andgeneralscientificendeavors.GAAPisveryconservativeonthequestionofR&D.SuchexpendituresareconsideredsodifficulttomeasureandfuturebenefitsaregenerallysouncertainthatU.S.GAAPrequiresexpensingoftheexpenditureintheyearoftheexpenditure.ThisrequirementisquitecontroversialandsomemanagersarguethatforcingthemtoexpenseR&DdiscouragesthemfrominvestinginR&D.PatentsApatent

isarightgrantedbyagovernmentforexclusiveuseandbenefitsforandinventionforalimitedtime.TheU.S.hasbeenextendingthedefinitionofwhatqualifiesasaninventiontoincludewhatarecalledintellectualpropertyrights.U.S.Patentsmaynowcoverideas,mathematicalformulasand(inonecaseat丝式least)averylargeprimenumber.Copyrights

aresimilarbutarenotinventions,rathertheyarerightsgivenforexclusiveuseofanartisticdesignorwords.Music,photographs,andfamouspeoplearesometimescopyrighted.Trademarks,TM,aresimilarbutarespecificidentifiersforfirms.PatentsintheU.S.aregenerallyamortizedover20yearsusingastraightlinemethod.AdvertisingAdvertisingisexpenditurestoinformpotentialcustomersabouttheproductorservicesofthefirm.Itishopedthataninformedpotentialcustomerwillbemorelikelytopurchasefromthefirm.Thebenefitsofsuccessf乡丰uladvertisingmayextendformanyperiodsintothefuture,however,anysuchbenefitsareverydifficulttomeasure.GAAPrequiresimmediateexpensingofmostadvertisingcostsbecause:ThisismoreconservativethancapitalizationAnyfuturebenefitsaredifficulttomeasureFormanyfirms,advertisingcostsarefairlystableOthertopics-depreciationfortaxreportingModifiedAssetCostRecoveryMethod(MACRM)ThismethodisusedforU.S.incometaxreportingandnotforfinancialreporting.Theratesforeachyeararegivenbystatueforeachclassofassets.Themethodisbasedonaccelerateddecliningbalancemethodswithonlypartialdepreciationrecognizedinthefirstyear.Basically,theIRSspecifiesthedepreciationscheduleandthetaxpayerhaslittlecontroloverthemethod,therateortheusefullife.MACRSignoressalvagevalues.Whentheasset