...Essay Four (Exchange Rates): Topic 2 – Australia in the global Economy Outline the causes of a decrease in demand for the Australian dollar, and discuss the impacts on the Australian economy of a sustained depreciation of the Australian currency. The exchange rate is a measure of the value of a currency relative to another and is influenced by the demand and supply of the Australian Dollar (AUD). Changes in any of the factors that affect supply and demand causes the AUD to rise or fall. The demand for the AUD is derived from the demand of Australia’s goods, services and assets, which is impacted by domestic and international economic conditions. Therefore, factors such as decreased capital inflow from investors, decreased demand for Australian exports and speculation that the AUD will fall are the predominant causes of the decrease in demand of the Australian dollar. This decrease in demand has resulted in a sustained depreciation of the Australian currency that has resulted in various positive and negative implications for the Australian economy. Capital inflow impact the exchange rate as foreign investors wanting to invest in Australia must exchange their own currency for Australian dollars therefore impacting the demand for Australian currency. The level of Australian interest rates relative to overseas interest rates may influence their investment decisions. Recently the interest rate has fallen from 3.75% in May 2013 to 2.25% in April 2015, causing a decrease in...
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...assets are recorded at their acquisition prices and reported at historical costs (less accumulated depreciation, if applicable). Cost included in Asset Cost: The cost of a long-lived asset consists of all expenditures that are reasonable and necessary to acquire the asset, bring it to its desired location (in case of machines, equipment, and furniture), and make it ready for its intended use * Purchase Price * Sales Tax * Installation Costs * Freight/Shipping cost & Insurance while it is being acquired * Legal Fee * Repairs/Reconditioning * Not the repair cost that result as damage while installing * Testing * Modifying the asset * Legal prints Capital Cost is debited to an asset account instead of expense account Intangible assets are recorded at their acquisition costs, as well. Internally developed intangibles are not recorded in the books; only purchased intangible assets are recorded. That said, however, the costs of registering and successfully defending an intangible asset are recorded in the books. The cost of unsuccessful legal defense of an intangible asset is expensed when incurred. What is depreciation: Transferring of an assets cost to expense over its useful life. Depreciation Journal entry: * Dr. – Depreciation Expense account * Cr. – Accumulated Depreciation (This is a contra asset account) Depreciation Methods: 1. Straight Line 2. Units of Production (or Units of...
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...Memo To: Fan Company A From: Crystal Franklin Date: 05/172014 Re: Recommended Depreciation Method The straight line method of depreciation one of the easiest ways to calculate depreciation expense. The effects on net income is the same over the life of the item that is being depreciated, due to the expense having the same cost every year. To calculate straight line depreciation you take the cost minus the salvage value, than divide the number by the expected life. Double declining balance method of depreciation, uses double the straight line method. Double declining balance is calculated by, first finding the straight line depreciation amount than find the straight line percentage. To find the straight line percentage divide the yearly straight depreciation into the item’s cost minus the salvage value. Once you have the straight line percentage multiply it by two giving the double declining rate. The double declining rate is than multiplied by the cost minus any accumulated depreciation. Double declining balance method deducts larger amount during the early years of the item, this lowers net income early of the item. In the instances of corporations whose costs are based solely on production costs, the units-of-production is the best method. That way if production is low, than the depreciation expense is low, lowering the effect on net income. When the companies production is high, than there is a larger deduction to the net income. The units-of-output method is calculated...
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... 04/30/12 Re: Types of Depreciation for Assets Depreciation is the process of allocating to expense the cost of an asset according to its useful life. Depletion is the allocation of the expense for natural resources. Amortization is used for the expenses of intangible assets that a company may use. All three need to calculate the useful life of the items being expensed. They also need to have a life span. There are differences between all three, such as depreciation is used for physical assets like buildings, land, and machinery. Depletion on the other hand is used for natural resources such as timber, underground deposit such as oil, and gas. Finally, amortization is for intangible assets like patents, trademarks and goodwill. When calculating depreciation three factors must be determined; cost, salvage value, and useful life. To calculate the depreciable value of the asset one would use the cost less salvage value divided by the useful life of the asset. This would equal the annual depreciation rate of the asset. The straight-line method of depreciation remains the same until the useful life of the asset is used and is the most commonly used method. Calculating depletion requires cost less salvage value divided by estimated units multiplied by number of units extracted and sold. This would equal the annual depletion expense for the asset and is using the units-of-activity method. Last, amortization is calculated similar to depreciation in that the cost of the asset...
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...CHAPTER 3 ------------------------------------------------- FINANCIAL STATEMENTS, CASH FLOW, AND TAXES 1. Below are the 2007 and 2008 year-end balance sheets for Tran Enterprises: Assets: 2008 2007 Cash $ 200,000 $ 170,000 Accounts receivable 864,000 700,000 Inventories 2,000,000 1,400,000 Total current assets $3,064,000 $2,270,000 Net fixed assets 6,000,000 5,600,000 Total assets $9,064,000 $7,870,000 Liabilities and equity: Accounts payable $1,400,000 $1,090,000 Notes payable 1,600,000 1,800,000 Total current liabilities $3,000,000 $2,890,000 Long-term debt 2,400,000 2,400,000 Common stock 3,000,000 2,000,000 Retained earnings 664,000 580,000 Total common equity $3,664,000 $2,580,000 Total liabilities and equity $9,064,000 $7,870,000 The firm has never paid a dividend on its common stock, and it issued $2,400,000 of 10-year, non-callable, long-term debt in 2007. As of the end of 2008, none of the principal on this debt had been repaid. Assume that the company’s sales in 2007 and 2008 were the same. Which of the following statements must be CORRECT? a. The firm increased its short-term bank debt in 2008. b. The firm issued long-term debt in 2008. c. The firm issued new common stock in 2008. d. The firm repurchased some common stock in 2008. e. The firm had negative net income in 2008. Answer: c 2. On its 12/31/08 balance...
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...Income taxes and financial accounting Abstract: The paper discusses the basic elements of tax allocation, analyzes extensively the principal timing difference: accelerated depreciation for tax purposes and straight-line depreciation for published financial reporting, looks into the major aspects of SFAS No. 109, and explores the difference of GAAP and IFRS on tax allocation. 1. Income tax allocation In order to comply with IRS tax code and make sense of the tax expands for income statement analysis, income tax allocation involves with high level of complexity for financial statement. This paper tries to explain how income tax allocation works by comparing of accelerated tax depreciation versus straight-line for financial reporting. The paper will focus on the change from SFAS No. 109 from SFAS No. 96. The discounting of deferred tax liabilities is also mentioned and analyzed. Because of the timing difference between time of the tax return and the time of the publication of the financial statement, different taxable results incur from the IRS tax basis and the financial reporting basis. Although the different exist, the difference will be smooth out in the cumulated ways for years and years. Income tax expense and income tax liability are always differ from each other in figures, but with the difference deferred in next year. 1.1 History In 1967, APB Opinion No.11 replaced ARBs 43 and 44 under the requirement of comprehensive allocation. If there is any difference...
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...assets are those rights or economic benefits that are not physical in nature. 8-2 All three terms refer to an allocation of costs over time. Reduction of intangible assets is generally called amortization. Depreciation is a reduction in buildings and equipment and other tangible assets. Depletion is a reduction in natural resources. 8-3 Cash discounts are reductions in original cost, not income. 8-4 When an expenditure is capitalized, it is not credited to stockholders' equity. Rather, it becomes an asset with a useful life in excess of one year. Technically aAn asset is debited and generally either cash or a liability is credited. 8-5 Accumulated depreciation is not cash; if specific cash is being accumulated for the replacement of assets, such cash will be an asset specifically labeled as a "cash fund for replacement and expansion" or a "fund of marketable securities for replacement and expansion." Accumulated depreciation is the cumulative amount of an asset’s depreciable value that has been expensed. 8-6 Valuation implies some measure of present market value. In contrast, depreciation is the systematic allocation of the original cost of the asset to as an expense on the income statement over the useful life of the asset.s useful life. 8-7 Depreciation is a method of cost allocation, not valuation. It simply allocates the cost of an asset to the periods that benefit from its use. 8-8 No. Keeping two sets of books is necessary if two separate purposes...
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...1.0 INTRODUCTION Akademi Teknikal Laut Malaysia (ATLAM) was established on 15 August 1981, which wholly owned and organization by MICT Berhad located in Melaka and Terengganu. ATLAM was focused on training and preparing Malaysia for the maritime industry. On 1 January 1997 ATLAM went privatized and became one of the subsidiaries of the PETRA group-wide SAP. ATLAM vision and mission was to be a leader in maritime education and training and to facilitate value added learning via a conductive environment and provide excellent services to its clients. According to the conductive study by World Maritime University in 1997 ATLAM IT infrastructure was poor if compared to other countries in Europe and/or Japan. Because ATLAM used the single-user system, which allows users to produce only accounting entries, the system could not function for financial report. The access for better IT facilities was provided by PETRA after ATLAM was privatized. In 2001, ATLAM IT solution was to follow the PETRA IT infrastructure standards. ATLAM management had been asked to upgrade its accounting system with the PETRA group-wide SAP system in December 2001. SAP system, application and product in data processing are integrated business applications package that covered most functions of an organization. Those core functions of SAP are Financial Accounting, Controlling, Human Resources, Plant Maintenance, Project Systems and Basis System. In particularly, SAP system is feasible for ATLAM to run its financial...
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...semiannually on June 30 and December 31 each year. The computers were acquired by Computer World at a cost of $90,000 and were expected to have a useful life of six years with no residual value. | Required: | Prepare the appropriate entries for both (a) the lessee and (b) the lessor from the inception of the lease through the end of 2011. (Use straight-line depreciation.) (Omit the "$" sign in your response.) | Date | General Journal | Debit | credit | (a) Nath-Langstrom Services, Inc. (Lessee) | | | June 30, 2011 | Rent expense | | | | Cash | | | | | | | Dec. 31, 2011 | Rent expense | | | | Cash | | | | | | | (b) Computer World Corporation (Lessor) | June 30, 2011 | Cash | | | | Rent revenue | | | | | | | Dec.31, 2011 | Cash | | | | Rent revenue | | | | | | | | Depreciation expense | | | | Accumulated depreciation | | | | rev: 11_23_2011 Explanation: (b) Computer World Corporation (Lessor): | December 31,2011 | Depreciation expense ($90,000 ÷ 6 years) = 15,000 | 2. Exercise 15-7 Capital lease [LO5] American Food Services, Inc., leased a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2011. The lease agreement for the $4 million (fair value and present value of the lease payments) machine specified four equal...
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...CHAPTER 11 DEPRECIATION, IMPAIRMENTS, AND DEPLETION IFRS questions are available at the end of this chapter. TRUe-FALSe—Conceptual Answer No. Description T 1. Nature of depreciation. F 2. Nature of depreciation. T 3. Depreciation, depletion, and amortization. T 4. Definition of depreciation base. F 5. Factors involved in depreciation process. F 6. Definition of inadequacy. T 7. Objection to straight-line method. F 8. Units-of-production approach. F 9. Accelerated depreciation method. T 10. Declining-balance method. T 11. Group or composite approach. F 12. Use of the composite approach. T 13. Accounting for changes in estimates. F 14. Computation of impairment loss amount. T 15. First step in determining an impairment. T 16. Reporting impaired assets held for disposal. F 17. Method used to compute depletion. T 18. Costs included in depletion base. F 19. Computing asset turnover ratio. T 20 Profit margin on sales ratio. Multiple Choice—Conceptual Answer No. Description d 21. Knowledge of depreciation accounting. b 22. Conceptual rationale for depreciation accounting. c 23. Depreciation and retaining funds. b S24. Definition of depreciation. a S25. Service life vs. physical life. a P26. Definition of depreciable cost. d 27. Economic factors affecting useful service life. d 28. Factors involved in computing depreciation. d 29. Straight-line method assumption. a 30. Activity method of depreciation. a 31...
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...in real world environment the company that loses money would probably try to lower the fixed costs by shrinking it’s personnel. Also generally the more the business grows the more general and administrative expenses there would be, because the company would most likely to hire new people in order to accommodate the growth and increase capacity, but I treated it as a fixed cost as I could also observe it’s behavior from the income statement. To calculate it I used an average annual cost. Interest Expense I classified as variable as I observed it’s behavior I also noticed that that rate the interest is growing is 0.02% each successful year, thus I used that rate to calculate the increase in interest during the 10% growth and decrease using the same rate to account for 10% loss. The variability of this cost is based, in my opinion, on business strategy and capital allocation, and the interest rate on the market compared to the WACC, thus theoretically it is possible that the company would borrow more when it’s losing money, but it also possible that it would borrow less to lower it’s interest...
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...snapshot of a firm’s financial position at one point in time. Income statement – summarizes a firm’s revenues and expenses over a given period of time. Statement of retained earnings – shows how much of the firm’s earnings were retained, rather than paid out as dividends. Statement of cash flows – reports the impact of a firm’s activities on cash flows over a given period of time. Balance Sheet: Assets 2014 2013 Cash 7,282 57,600 Accounts Receivable 632,160 351,200 Inventories 1,287,360 715,200 Total Current Assets 1,926,802 1,124,000 Gross Fixed Assets 1,202,360 491,000 Less: Depreciation 263,160 146,200 Net Fixed Assets 939,790 344,800 Total Assets 2,866,592 1,468,800 Liabilities and Equity 2014 2013 Accts payable 544,160 145,600 Notes payable 636,808 200,000 Accruals 489,600 136,000 Total Current Liabilities 1,650,568 481,600 Long-term debt 723,432 323,432 Common stock 460,000 460,000 Retained earnings 32,592 203,768 Total Equity 492,592 663,768 Total L & E 2,866,592 1,468,800 Income statement ...
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...chapter 2 Property Acquisition and Cost Recovery Learning Objectives Upon completing this chapter, you should be able to: LO 2-1 Explain the concept of basis and adjusted basis and describe the cost recovery methods used under the tax law to recover the cost of personal property, real property, intangible assets, and natural resources. Determine the applicable cost recovery (depreciation) life, method, and convention for tangible personal and real property and calculate the deduction allowable under basic MACRS. Explain the additional special cost recovery rules (§179, bonus, listed property) and calculate the deduction allowable under these rules. Explain the rationale behind amortization, describe the four categories of amortizable intangible assets, and calculate amortization expense. Explain cost recovery of natural resources and the allowable depletion methods. LO 2-2 LO 2-3 LO 2-4 LO 2-5 Storyline Summary Taxpayer: Teton Mountaineering Technology, LLC (Teton)—a calendar-year single-member LLC (treated as a sole proprietorship for tax purposes) Cody, Wyoming Steve Dallimore Teton must acquire property to start manufacturing operations and wants to understand the tax consequences of property acquisitions. Location: President/ Founder: Current situation: cave waiting for the tempest to pass, Steve had an epiphany—a design for a better ice-climbing tool. Since that moment, Steve has been quietly consumed with making his dream—designing and...
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...systems entail $3 million in operating costs; both will be depreciated straight-line to a final value of zero over their useful lives; neither will have any salvage value at the end of its life. The firm’s tax rate is 40%, and the discount rate is 12%. a. Calculate the equivalent annual cost of each alternative: (Do not round intermediate calculations. Enter your answers in millions rounded to 3 decimal places.) Equivalent Annual Cost Quick & Dirty $3.668 million Do-It-Right $3.553 million b. Which system should Blooper install? Do-It-Right Explanation: a. Find the equivalent annual cost of each alternative: Quick and Dirty Do-It-Right Operating costs $3 million $3 million Investment $16 million $18 million Project life 4 years 5 years Annual depreciation $4 million $3.6 million Depreciation tax shield $1.6 million $1.44 million PV(depreciation tax shield)* $4.86 million $5.191 million Net capital cost† $11.14 million $12.809 million EAC of net capital cost* $3.668 million $3.553 million *Annuity discounted at 12%; number of years = project life. †Investment − PV(depreciation tax shield). The present value of the depreciation tax shield for each alternative is computed as follows: PV= $1.600 MILLION {1/0.12 -1/0.12 (1.12)4 }= $4.860 MILLION PV= $1.440 MILLION {1/0.12 -1/0.12 (1.12)5}= $5.191 MILLION The equivalent annual...
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... Topic Pages I. Cover Page 1 II. Table of Contents 2 III. Introduction 3 IV. The Coca-Cola Company History 4 V. Property, Plant, and Equipment 5 VI. Disposition and Exchanges of Property, Plant, and Equipment 5 VII. Impairment of Intangible Assets/Goodwill 6 VIII. Depreciation Method 7 IX. Contingent Liabilities 7 & 8 X. Tax Return 8 XI. Long-Term Debt 9 XII. Current/Long-Term Liabilities/ Interest Expense 10 XIII. Conclusion 11 XIV. Photos 12 XV. References ...
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