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Financial Statement AnalysisModule 7 of 9

Analysis of Long-Term Assets

5

Concepts

4

Formulas

1

Decisions

3

Quiz Questions

Key Concepts

5 concepts covered in this module.

Depreciation Methods

Straight-line: equal annual charge. Accelerated (DDB): higher early charges. Units-of-production: based on usage.

Impairment

When carrying value exceeds recoverable amount. Write down to fair value. IFRS: reversal allowed (except goodwill). US GAAP: no reversal.

Capitalized Interest

Interest on funds borrowed to construct qualifying assets can be capitalized. Increases asset value, reduces current interest expense.

R&D Costs

Research: always expensed. Development: IFRS — capitalize if criteria met. US GAAP — generally expense (except software development costs).

Revaluation Model

IFRS allows assets to be carried at fair value (upward revaluations to OCI). US GAAP: cost model only (historical cost less depreciation).

Formulas

4 essential formulas for this module.

Straight-Line Depreciation

Annual Dep = (Cost - Residual Value) / Useful Life

Where: Equal annual charges

DDB Depreciation

Dep = (2 / Useful Life) × Beginning Book Value

Where: Double declining balance — ignore residual until final years

Average Age of Assets

Avg Age = Accumulated Dep / Annual Dep Expense

Where: Estimates how old assets are

Remaining Useful Life

Remaining Life = Net PP&E / Annual Dep Expense

Where: Estimates years of use remaining

Decision Frameworks

1 decision frameworks to guide your analysis.

Straight-line vs Accelerated depreciation?

  • SL: when asset provides uniform benefit over life
  • Accelerated: when asset loses value faster in early years (vehicles, tech)

Mind Map

Visual overview of how concepts connect in this module.

Long-Term Assets
Depreciation
Straight-line
DDB
Units of production
Component depreciation
Impairment
Carrying > recoverable amount
Write down to FV
IFRS: reversal OK (not goodwill)
GAAP: no reversal
R&D / Intangibles
Research: always expense
Development: IFRS capitalize
GAAP: generally expense
Amortize finite-life
Revaluation
IFRS: FV model allowed
GAAP: cost model only
Upward reval → OCI

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