Test

INTRO TO FINANCE NOTES

Impairments don’t just affect the current statement. They affect future net income. Net income will be higher because you are writing down a future liability

Write down (impair) asset (mark as expense) when value is lower than carrying amount (recognized value less deprec.) either to the higher of value in use (amount it’s worth in regards to future income) or fair value (amount it could be sold for)

Once you impair something it cannot be reversed.

Acquisitions – Assets are initially valued at cost + money put into making it ready to use + (if internally created – direct development costs) + (if PPE future cost of removal, etc.) Do not count VAT tax***

Asset may stay at historical price less depreciation, or it can be revalued at fair value.

Depreciation: Most is straight-line method. Spread out over economic life. Either to zero or to residual value (i.e. selling for scraps) About wearing down if asset, not about saving for replacement or taxes

Intangible assets (self-generated) record only of you can separate research from development, and only development costs. There must be a market for output, and it there must be PROBABLE future income

Intangible assets can still be amoratized (depreciated), or just impaired

DO NOT INCLUDE (Brands, customer list, training expenses, internal goodwill)

If you don’t capitalize (current profit lower, future profit higher, capital appears less stable)

If you capitalize (current profit higher, future profit lower (those assets will eventually become liabilities), capital appears more stable)

***Cash flow from operations divided by total debt is a good way to measure the health of a company

Companies hide debt through leases.

Investment Property – Either use cost accounting or fair value. Can switch for cost to fair but not the other way. If fair value – adjust value in profit and loss, no depreciation or impairment.

FINANCIAL ASSETS:

Non-Derivative – cash, shares, receivables, loans,...