Answer 7.4

Cartridge Business Publishers Depreciation, Depletion, and Ammortization: The Matching Concept Depreciation, depletion, and am expected useful life. Discuss how these processes reflect the matching principle and why they are portant ration are allocation processes that distribute the acquisition cost of an asset to the many periods of tive's Advertising Costs: Capitalize or Expense? Abercrombie & Fitch Co. discloses in its annual report that The production of in-store photography and signage is expensed when the marketing campaign commence and all other advertising costs are expensed as incurred as components of marketing. general and adminis 7 I Long Lived Fixed Asset Inneblo Ade, and Natural Resources 07.2 to the measurement of corporate profitability Q7.3 27.4 tive expense" on the income statement. Discuss why the expensing of advertising costs is considered to be "best practice. Can an argument be made that advertising costs should be capitalized? Revaluation of Long-lived Assets. The Queensbury Corporation was founded in 1947 on a decommissioned military installation that had been purchased from the U.S. government for a price of SI. Today, that same land carries a fair market value of 870 million. Consistent with the historical cost principle. The Queensbury Corporation continues to value the land at its original purchase price of Si plus the cost of any improvements (such as roadways, lights, and drainage). Discuss the financial statement problems created by the historical cost principle for entities like The Queensbury Corporation that have significant investments in long-lived appreciating assets (such as land. Should these companies be allowed to revalue these assets? Why? How would a land revaluation be reflected in the financial statements? Capitalization of Interest Costs and Earnings Quality. Under U.S. GAAP, a company may capitalize any interest costs associated with borrowings used in the self-construction of a business asset. Any capitalized inter est is added to the cost basis of the asset and then depreciated over the expected useful life of the asset. Some investment professionals question the appropriateness of interest capitalization, observing that the interest costs associated with general corporate borrowings are expensed when paid and are not capitalized. These professionals allege that interest capitalization is a form of rear-end loading of expenses, and when material in amount, draws into question the quality of a firm's reported camings. Discuss the validity of these arguments. Effects of Different Depreciation Methods. Toyota Motor Corporation reported the following deprecia- tion policy in its annual report: "Toyota used the declining-balance method mainly for the parent company and Japanese subsidiaries, and the straight-line method for foreign subsidiary companies, regarding the depreciation method of property, plant and equipment." Discuss the financial statement effects of using declining balance methods versus straight-line depreciation. Should the depreciation method chosen affect the firm's cash flows? Changes in the Estimated Useful Lives of Long-lived Assets. Audit Analytics suggests that changes- in estimated useful lives are not uncommon and that they are often income-increasing https://blog Editanalytics.com/changes-in-the-useful-lives-of-depreciable-assets/. Discuss how changes in the es imated useful lives of assets translates into changes such changes? net income. Should the capital markets reac Exploration and Development Costs in the Natural Resource Industry. Under U.S. GAAP, research an evelopment costs are expensed as incurred; however, in the natural resource industry, the cost of finding a veloping natural resources may be capitalized to the balance sheet under the full cost and successful effore thods. Are these methods inconsistent with the general treatment of reseamh S. GAAP? If so, why? What cynlanati