Summary
Summary Accounting lectures partexam 2
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Lectures typed for the second partexams of Accounting, RSM Erasmus University, Business Administration block 2
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Accouting deeltentamen 2Hoorcollege’s
4 Assets
Property, plant and equipment: measurement
Insured value van een gebouw komt het dichtsbij de reële waarde van een gebouw.
Depreciation methods:
Straight line:
Depreciation = (cost - residual value) x (1 / useful life)
Double declining balance:
Depreciation = book value x (1 / useful life) x 2
Units of production:
Depreciation = (cost - residual value) x (number of items produced / expected
total number
of items produced)
The essential question of an impairment test is: is the fair value of an asset at least its
book value?
Inventory: measurement
Types of inventory:
Retail company: merchandise (i.e. finished goods)
Manufacturing company: raw materials, work-in-progress, finished goods
Inventory is valued at the lower cost or net realizable value
Net realizable value: the estimated selling price in the ordinary course of business led
the estimated costs of completion and the estimated costs necessary to make the
sale.
When might NRV be lower than cost?
An increase in cost to complete or selling costs
A fall in selling price
Physical deterioration of inventories
Obsolescence of products
A decision to manufacture and sell products at a loss
Errors in production or purchasing
Obsolescence:
Functional obsolescence: reduction of an object’s usefulness or desirability
because of an outdated design feature that cannot be easily changed
Economic obsolescence: form of depreciation caused by factors that are not on
the property, in the property, or even within the property lines. It can be caused
by factors like the neighborhoods experiencing a rise in crime, or by economic
factors such as problems in the job market.
Physical deterioration: loss in the physical efficiency of an asset as it ages.
Efficiency in this context refers to the asset’s ability to produce a quantity of
capital services for a given amount of inputs.
Cost formulas:
Specific identification (not really a formula)
FIFO
Average cost
, LIFO (not allowed in all countries, often only for tax purposes)
Effect of costing method:
Cost should include all:
Costs of purchase (include excise duty, transport and handling) net of trade
discounts received
Costs of manufacturing (including)
Other costs incurred in bringing the inventories to their present location and
condition
Key take-aways:
Property, plant and equipment are measured at cost less deprecation or lower
recoverable amount
There are different deprecation methods, resulting in faster or slower
depreciation
Useful life is an estimate that may need to be revised
Inventory is measured at cost or lower net realizable value
Cost allocation methods are needed if goods are fungible
5 Liabilities & Equity
Financial liabilities
Time value of money heb je liever 1 euro vandaag, of 1 euro volgend jaar? Heb je
liever 1 euro vandaag of 100 euro volgend jaar? Of wil je 1 euro vandaag of 1,04 euro
volgend jaar? Deze 4 cent kun je dan zien als ‘rente’.
Dit laat zien dat mensen willen wachten op geld, dat ‘tijd te koop’ is.
3 factoren time value of money:
1 Expected inflation geldontwaarding, de waarde van geld verandert over tijd.
Mensen willen echter liever hun koopkracht betalen.
2 Postponed consumption uitstellen van een consumptie
3 Risk
1 euro vandaag krijgen OF 80% van 1,25 euro maar 20% kans op 0 euro
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