Financial Accounting: In an Economic Context

CHAPTER 9

Long-Lived Assets

KEY POINTS

The following key points are emphasized in this chapter:

• How the matching principle underlies the methods used to account for long-lived assets.
• Major questions addressed when accounting for long-lived assets and how the financial statements are affected.
• Major economic consequences associated with the methods used to account for long-lived assets.
• Costs that should be included in the capitalized cost of a long-lived asset.
• Accounting treatment of postacquisition expenditures.
• How the cost of a long-lived asset is allocated over its useful life and the alternative allocation methods.
• Disposition of long-lived assets.
• The increasing importance of fair market value and issues that must be addressed when using fair market value as a basis for long-lived assets.

The Pepsi Bottling Group recently reported that its depreciation expense will be lower, boosting the bottom line, due to successful maintenance allowing changes in asset depreciation. Depreciation lives on manufacturing equipment, for example, are being changed to fifteen from ten years. The company said the change would reduce depreciation expense by about $58 million and increase earnings 22 cents a share. “The primary reason for this is that our extensive maintenance programs have enabled us to extend the operating lives of our assets well beyond their previous book lives,” said company management.

The methods used to account for property, plant, and equipment vary greatly across ...