Course Description

The procedures and logic underlying the accounting for fixed assets are developed in an introductory financial accounting course. Those courses typically do not examine in detail several crucial issues in accounting for fixed assets: capitalization of costs, the implications on financial statements of different depreciation methods, incorporating more realistic information into the determination of periodic depreciation, the implications of fixed asset impairment and the impact of all of these items on analyzing fixed assets of a company. These concepts are developed in this self-study program to give the reader of financial statements a thorough understanding of the accounting, presentation and analytic implications behind the numbers.


Objectives

After completing this Self Study you should be able to:

  • understand the basics of accounting for fixed assets.
  • understand capitalization of costs related to fixed assets at two time frames:

           - At acquisition

           - Subsequent to acquisition

  • understand the principles behind depreciation policy of fixed assets including the following depreciation methods:

          - Straight-line

          - Sum of the years digits

          - Declining balance

  • understand the analytical implications of capitalization and depreciation policy on the balance sheet, income statement and statement of cash flows
  • understand partial period depreciation
  • understand accounting for revised depreciation estimates
  • understand impairment of fixed assets including the causes and implications
  • understand the analytic implications of reporting of fixed assets using historical cost accounting principles vs. the fair value of the fixed assets through ratio analysis


Instructions

This study is broken down into units. In each unit, the approach is to:

  • develop the logic behind a particular point (or subject)
  • illustrate the logic through an example (or examples)
  • give exercises that require you to demonstrate your understanding of the material
  • at the end of each unit are a series of problems for you to work

The exercises contained within each unit are straightforward and parallel the concepts developed in the text. If you choose to print the unit, space is provided within the study (after each exercise) for your answers. Work all exercises and check your answers against the answers provided. Even if you arrive at the correct answer, review the suggested solution since it provides a step-by-step approach to problem solving. It may also provide a better understanding of the material.

The practice problems at the end of each unit are generally more difficult than the exercises. They require you to apply the concepts developed in each unit in a manner similar to that which you’ll use in analysis.


Prerequisite Knowledge

  • an understanding of the basics of accounting, including familiarity with journal entries, t-accounts, and the structure of the financial statements (balance sheet, income statement, cash flow statement)
  • an understanding of the principles behind financial accounting including revenue recognition, capitalization and expensing of costs (the matching principle) and historical cost, et. al.

Broderick Associates

Chris Broderick

CHRIS BRODERICK, as the primary principal of Broderick Associates, Chris Broderick translates his experience as a financial analyst to the teaching of accounting and financial statement analysis. Chris is a second-generation instructor of this family-run enterprise beginning his teaching in 1995 in association with his father. Since 1986 as a analyst with Chase Manhattan Bank, Chris has a broad expertise in international credit analysis traveling throughout the globe from his base in the New York and London offices. Later in 1989 he began training within Chase on a worldwide platform. Since joining Broderick Associates, he has trained employees with HSBC, JP Morgan Chase, TD Bank among others; both locally and globally. Throughout his career, he has also been aligned with various colleges and universities.

Course curriculum

  • 1

    Course Objectives, Instructions, Prerequisite Knowledge Required and Contents

  • 2

    Section 1: Review of Accounting Procedures

    • Introduction

    • The Accounting Model

    • Capitalization of Cost

    • Allocation of Cost to Expense

    • Accumulated Depreciation

    • Disposal of Fixed Asset

    • Gain on Sale

    • Loss on Sale

    • Exercise 1

    • Accounting Issues and Implications

    • Effects of Accounting Policies on Financial Statements

    • Effects of Accounting Policies on Income Taxes

    • Capitalization Policy and Income Taxes

    • Depreciation and Income Taxes

    • Exercise 2
  • 3

    Section 2: Capitalization Policy

    • Introduction

    • Costs Related to Acquisition of Fixed Assets

    • Gray Area Costs and General Principle

    • Example: Capitalization of Acquisition Costs

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    • Exercise 3

    • Cost of Self Constructed Assets

    • Assets Acquired in a Lump-Sum Purchase

    • Costs Subsequent to Acquisition

    • Types of Costs Incurred Subsequent to Acquisition

    • Example: Major Overhaul Extending Asset’s Life

    • Exercise 4
  • 4

    SECTION 3: Depreciation Policy

    • Introduction

    • Factors Involved in Accounting for Depreciation

    • Depreciation Methods

    • Straight-Line Depreciation

    • Example: Straight-Line Depreciation

    • Accelerated Depreciation Methods

    • Sum-of-Years'-Digits Method

    • Example: Sum-of-Years'-Digits Depreciation

    • Exercise 5

    • Declining-Balance Method

    • Example: 200% (Double) Declining-Balance Depreciation

    • Exercise 6

    • Comparison of Depreciation Methods

    • Exercise 7

    • Exercise 8

    • Activity Method

    • Exercise 9

    • Exercise 10

    • Additional Depreciation Issues

    • Example: Half-Year Depreciation Convention

    • Exercise 11

    • Revision of Depreciation Rates

    • Example: Revision of Estimated Life and Salvage Value

    • Exercise 12

    • Depreciation for Income Tax Purposes
  • 5

    SECTION 4: Impairment of Fixed Assets

    • Introduction

    • Assets to be Held and Used

    • Reporting Impairment Losses

    • Assets to be Sold or Retired
  • 6

    SECTION 5: Analysis of Reported Information

    • Introduction

    • Current Costing: A Frame of Reference

    • Implications for Analysis
  • 7

    Summary

    • Summary of Major Points
  • 8

    Practice Problems

    • Problem 1

    • Problem 2

    • Problem 3

    • Problem 4

    • Problem 5

    • Problem 6