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It is the excess of the purchase price over the fair value of all the tangible assets acquired, arrived at by carefully ascertaining the value of such assets—at least in theory. The analyst must be alert to the makeup and the method of valuation of Goodwill as well as to the method of its ultimate disposition. One way of disposing of the Goodwill account, frequently preferred by management, is to write it off at a time when it would have the least impact on the market's assessment of the company's performance. (for example, in a period of losses or reduced earnings).
16. Costs are capitalized as assets when these expenditures are expected to bring the entity value beyond the current year. If the value associated with the expenditure will be used up in the current period, the expenditure is expensed.
17. Hard assets are assets such as the factory and machinery—they are tangible and identifiable. Soft assets are assets such as software, research and development efforts, and intellectual capital—they are more intangible in …show more content…
| 4,262.0 (c) |4,262.0 (c) |
|Goods available for sale……………………….. |$5,078.0 |$5,166.0 |
|Less ending inventory………………………….. | (819.8) (34) | (904.4)(152) |
|Cost of goods sold………………………………... |$4,258.2 (14) |$4,261.6 |
|Revenues…………………………………………… |$6,205.8 (13) |$6,205.8 (13) |
|Cost of goods sold (above) …….………. |(4,258.2) | (4,261.6) |
|Gross profit: | | |
| As reported …..…………………………………. |$1,947.6 | |
| Under FIFO ……………………………………… | |$1,944.2 …show more content…
All else equal, if Trimax invests more in software development in a given year, net income will be higher because the company can capitalize many software development costs. In contrast, expenditures for other R&D projects must be expensed in the year when incurred. Of course, this response ignores the economic implications for which we require additional information to judge the relative successes of these expenditures.
Problem 4-5—continued
e. Ratio Implications of Alternative Accounting Treatments for R&D and Software: [Note: Answers disregard income tax consequences.]
(Year 2006) Net income Return on Assets Return on
16. Costs are capitalized as assets when these expenditures are expected to bring the entity value beyond the current year. If the value associated with the expenditure will be used up in the current period, the expenditure is expensed.
17. Hard assets are assets such as the factory and machinery—they are tangible and identifiable. Soft assets are assets such as software, research and development efforts, and intellectual capital—they are more intangible in …show more content…
| 4,262.0 (c) |4,262.0 (c) |
|Goods available for sale……………………….. |$5,078.0 |$5,166.0 |
|Less ending inventory………………………….. | (819.8) (34) | (904.4)(152) |
|Cost of goods sold………………………………... |$4,258.2 (14) |$4,261.6 |
|Revenues…………………………………………… |$6,205.8 (13) |$6,205.8 (13) |
|Cost of goods sold (above) …….………. |(4,258.2) | (4,261.6) |
|Gross profit: | | |
| As reported …..…………………………………. |$1,947.6 | |
| Under FIFO ……………………………………… | |$1,944.2 …show more content…
All else equal, if Trimax invests more in software development in a given year, net income will be higher because the company can capitalize many software development costs. In contrast, expenditures for other R&D projects must be expensed in the year when incurred. Of course, this response ignores the economic implications for which we require additional information to judge the relative successes of these expenditures.
Problem 4-5—continued
e. Ratio Implications of Alternative Accounting Treatments for R&D and Software: [Note: Answers disregard income tax consequences.]
(Year 2006) Net income Return on Assets Return on