Week 6 | Non current assets

Question 1

What is the definition of PPE?

Answer 1

Property, plant and eqyipment are tangible items that:

a) are held in for use in production or supply of goods and services, for rental to others or for administrative purposes and
b) are expected to be used during more than one period. i.e. Non-current Assets

Question 2

When can PPE be recognised?

Answer 2

The cost of an item of property, plant and equipment shall be recognised as an asset, if, and only if:

a) It is probable that future economic benefits associated with the item will flow to the entity and
b) the cost of the item can be measured reliably
i. e. (PPE) are physical assets used in the business to provide future economic benefit

Question 3

What are the 2 classes of PPE and what do they include?

Answer 3

Property:
- Includes land, land improvements and buildings
Plant and equipment:
- Includes cash registers, computers, office furniture, factory machinery, motor vehicles

- Refer to ColesGroup Ltd Annual Report:
Page 100 (Balance Sheet) and Note 2.5 pages 114-115

Question 4

How are PPE assets initially recorded? What is the definition of fair value?

Answer 4

PPE assets are initially recorded at historical cost in accordance with AASB 116, para 6
The amount of cash or cash equivalents paid OR the fair value of the other consideration given to acquire the asset

Fair is the amount for which an assert could be exchanged between knowledgeable willing partners in an arm’s length transaction

Question 5

What does the cost of an asset consist of? What does it exclude?

Answer 5

The cost of an asset consists of all the expenditure necessary to acquire the asset and make it ready for use.
- e.g. purchase price, freight costs paid, installation costs (capital expenses)

Excludes non-capital expenditures which are expensed immediately.
-e.g. Training an operator; oil for the machine, etc

Note: some costs are capitalised (added to the asset-balance sheet) some are expensed (income statement)

Question 6

What does the cost of property include?

Answer 6

• Purchase price
• settlement costs
• stamp duty
• accrued property taxes assumed by purchaser
• cost to demolish old buildings (less any proceeds received for sale of salvaged materials)

E.g.
Land
Cash price of property $100000
Net Removal cost of warehouse 6000
Solicitors fee 1000
Stamp duty 2000
Cost of land 109000

Question 7

What are the costs used to improve land called? Are they subjected to depreciation? What do the costs of improvement include?

Answer 7

The costs to improve the land are identified in a separate account called “Land Improvements” and subject to depreciation

Costs of improvement such as:

• paving
• landscaping
• car park construction
• fences

Question 8

What do the costs of plant and property include?

Answer 8

• purchase price
• freight charges
• insurance during transit
• installation costs

                                  Delivery Truck  Cash price                                                         $22000 Air-conditioning                                                      1320 Painting and lettering                                              500 Cost of delivery truck                                          23820

Question 9

Is PPE an account with high risk in valuation? Does it have significant dollar value attached to it and what three things do we need to apply judgement to ?

Answer 9

PPE is an account that involves significant risk/estimation in valuation of the asset
Typically PPE has significant dollar values attached to it (i.e. percentage of total assets)
Consider judgements involved when determining:
- The cost of an asset
- Depreciation (except for land)
- An asset’s fair value

Question 10

What is the definition of depreciation (PPE context), and what is the definition of carrying amount?

Answer 10

Depreciation is the process of allocating to expense the cost of a PPE asset over its useful (service) life in a rational and systematic manner
Carrying amount (value) equals cost less accumulated depreciation
Important points:
- Depreciation is not a cash flow!
- Depreciation is an estimate of the consumption of the future economic benefits (i.e. service potential ) embodied in the asset (the matching principle)
Depreciation does NOT measure the decline in MARKET value!

Question 11

What four factors, outlined by the AASB 116 contribute to decline in value of a depreciable asset?

Answer 11

• Usage of the asset
• Wear and tear through physical use of the asset
• Technical and commercial obsolescence
• Legal life

Question 12

What are the factors in calculating depreciation?

Answer 12

Cost:
All expenditures necessary to acquire the asset and make it ready for intended use- invoices / purchase note

Useful life:
Estimate of the expected life based on intended use, need for repair, vulnerability to obsolescence and legal life

Residual value:
Estimate of the asset’s value at the end of its useful life

Question 13

What are the three depreciation methods?

Answer 13

• Straight line
• Reducing balance
• Units of production

Question 14

What is the straight line method? How do we calculate for annual charge on this straight line method?

Answer 14

The straight line method: Depreciation expense same each year as benefits are consumed at same rate each year

Calculation:

(Cost of asset - residual value/ Uselife life of the asset )

Question 15

There has been a delivery truck expense. How do we record depreciation expense through journaling?

Answer 15

Dec 30 Depreciation Expense - Delivery Truck 2400
Accumulated depreciation - Delivery Truck 2400
( To record depreciation expense for the year)

Depreciation rate is based on the number of years for depreciation to occur. i.e. 5 years = 20% pa; 4 years = 25% p.a

Question 16

What is the diminishing (reducing) balance method?

Answer 16

Depreciation expense decreases each year on percentage basis as greater benefits are consumed earlier in assets life
Calculation: generally use 2 times the straight rate and applied to the reduced cost at the start of the period.
(rate may be different for different assets/different useful life!!)
Reducing balance method used when decline in value is greatest in early years - examples: technical obsolescence, fashion (see examples in lecture slide (23)

Question 17

What is the unit production method? How do you calculate depreciation cost and expense for this method?

Answer 17

Useful life is expressed in terms of total units of production or use expected from the asset
Calculation of depreciation cost per unit:
(Depreciable cost of asset)/ (useful life of the asset)

Depreciation expense:
Depreciation cost per unit x yearly units of production

Bill’s pizza example:
Depreciation per unit= $12000/100000 = $0.12 per unit
Depreciation expense= $0.12 x 15000 units = $1800

Question 18

What trends can be deducted from the patterns of depreciation through straight line depreciation, diminishing method and units of production?

Answer 18

Straight line is straight line
Diminishing: downward sloping curve (negative downward sloping)
Units of production: zig zag (rises up and falls down )

Question 19

During the useful life of an asset, what other costs may a firm incur? (subsequent expenditure)

Answer 19

a. Ordinary repairs
Costs in servicing or maintaining operating efficiency of the asset
Expensed immediately in operating statement

b. Additions and improvements
- costs incurred to increase operating efficiency eg. an overhaul
- Expenditure capitalised and depreciated (expensed) over asset’s remaining useful life

(NOTE: the classification of a transaction as either expense or capitalisation affects the profit result)

Question 20

Case study: Currently a firm uses straight line depreciation method.
What strategies could the firm use to alter its depreciation expense in the current year?

Answer 20

• Change methods - would need to disclose in notes
  Change residual value estimates
  Change estimated useful lives

Question 21

If a company finds that a change is warranted in its estimate of an asset’s useful life. What do we do to the past calculations? What is the asset’s cost and how will subsequent depreciation calculations be based?

Answer 21

We do not change the past calculations

• The current carrying amount is (cost less accumulated depreciation) is treated as the asset’s cost
• Subsequent depreciation calculations are based on this revised cost- and using the ‘new’ useful life

Question 22

Adjusting PPE example.
On1 January 2017, XYZ Ltd purchased a “post-hole digger”
- Cost $12000
- Depreciation method Straight line
Estimated useful life 4 years
Estimated residual value $2000
To 30 June 2017 depreciation has been recorded based on the original estimates
What is the depreciable amount? What is the carrying amount?

Answer 22

Straight Line = $12,000 (Cost) –$2,000 (Residual value)
= Depreciable amount $10,000

Divide by the estimated useful life of the asset (4 years)
= $2,500 depreciation expense per annum.

• Purchased on the 1st January and Balance day is 30th June,
therefore depreciate 6 months (1/2 of yr.): $2,500*0.5 = $1,250

PPE (Cost) 12,000
Less Accum. Depn 1,250
Carrying Value 10,750

Question 23

Adjusting depreciation of PPE (follow up)
However, on 30 June 2017 a review of all vineyard assets by an independent value determined that the asset was likely to have a useful life of 10 years and no residual value.
What is the new cost of the PPE?
What is the new depreciation calculation after review?

What will this show in the accumulated account (T account)

Answer 23

The new cost of PPE : $10750
Straight line: (10750-0)/10 = $1075 per annum

                     Accumulated depreciation - equipment  \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ 30/6/16   Closing Balance 2325        |       1/7/17 Open Bal             1250
                                       --------       |      30/6/18  Dep Exp             1075
                                      2325       |                                               \_\_\_\_\_
                                                      |                                                2325
                                                      |  1/7/18  Opening balance      2325
                                                      |

There is no entry in the What is the carrying value?
accumulated depreciation PPE (Cost) 12000
account that will note the Less Accum Dep (2325)
change in useful Carrying value 9675
life/depreciation rate

Question 24

PPE assets may be subject to an overhaul or replacement of major arts. In these cases the asset is revalued by writing it down to its carrying amount

Example: A van cost $48,000, estimated to have a 5 year life and residual
value $8,000. At the end of its 4th year accumulated depreciation is $32,000.
i.e. carrying amount is $16,000.
However, the van’s engine needed a major overhaul costing $7,000 and the
directors estimate the van will last for 4 more years with a residual value of
$3,000.
What happens in the accounting entries? What is eliminated

Answer 24

The accounting entries will be to eliminate the cost and accumulated depreciation of the van up to the time of the overhaul and the cost price will be replaced by the carrying value of the van.

Question 25

Example: A van cost $48,000, estimated to have a 5 year life and residual value $8,000. At the end of its 4th year accumulated depreciation is $32,000.
i.e. carrying amount is $16,000.
However, the van’s engine needed a major overhaul costing $7,000 and the directors estimate the van will last for 4 more years with a residual value of $3,000.
Following up on the van overhaul case, what would be debited and credited? (e.g. reversing accum depreciation process and installation of new engine process)

Answer 25

Debit Accum depreciation of van $32000
Credit Van $32000
(Reversing the accum depreciation)

Debit Van $7000
Credit Cash $7000
(installation of new engine)

Depreciation for each of the remaining 4 year sis based on:
Carrying amount of van $23000
Less residual value 3000
New depreciable amount 20000
Annual depreciable amount
20000/4 = $5000

Balance sheet at end of year 5:
Van $23000
Less accum depreciation 5000 $18000

Question 26

PPE can be recognised by sales, scrapping and exchange. What do the terms: sales, scrapping and exchange mean?

Answer 26

Sales: equipment sold to another party
Scrapping: Equipment is scrapped or discarded
Exchange : Existing equipment is traded for new equipment

Question 27

How would the details of scrapping an asset (debit and credit, be recorded?)
• On 31 May 2018, one of XYZs’ new tractors was involved in an
industrial accident. Details of this asset are:
o Cost $30,000
o Carrying value $21,000
o Estimated useful life 10 yrs.
o Residual value nil
o The asset was insured for $15,000, and the asset cannot be
repaired
XYZ ceased depreciation at 31 May because the tractor was no
longer operational

Answer 27

Journal entry for scrapped asset:

                                     The general journal 

Date: Account and explanation post ref Debit Credit
31/5/18 Accumulated depreciation - asset 9000
Bank/Other receivables 15000
Loss on scrapping asset (write down) 6000
Asset 30000
Record the scrapping of a partially depreciated asset

Question 28

At the end of an asset’s useful life the business may seek to sell the asset to recoup some of its initial cost.
At the date of sale, an entry is made for the portion of depreciation since the last adjustment

The final carrying amount is compared to the proceeds from the sales.
When do firms recognise gains or losses on sale of asset? What is the method that recognises gains or losses on sale called?

Answer 28

If proceeds > CA => recognise a gain on sale of asset
If proceeds < CA => recognise a loss on sale of asset
The method to record a sale of asset - sale of asset method,
identifies gain (profit) or loss on sale.

Question 29

Sale of PPE example
Example (Gain on sale)
Wright Ltd sells office furniture on 1 July 2017 for $16 000 cash
•Original cost was $60 000
•Accumulated depreciation to 1 January 2017 is $41 000 (i.e. book
value = $19,000)
•Depreciation expense for first 6 months of 2017 is $8 000

How would depreciation expense be calculated? (debit and credit)
How do we calculation gain on disposal?

Answer 29

Recording depreciation:
July 1 Depreciation Expense - Office Furniture 8000
Accumulated depreciation expense- Office furniture 8000
(To record depreciation expense for first 6 months of 2017)

Calculation of gain on disposal
Cost of office furniture $60000
Less: Accumulated depreciation ($41000 +$8000) 49000
Carrying amount at date of disposal 11000
Proceeds from sale 16000
Gains from proceeds on sale $5000

Recording sale of the asset
Jul 1 Cash 16000
Accumulated depreciation - Office furniture 49000
Office furniture 60000
Gain on disposal 5000
(Gain disposal is closed to the Income Summary account)

Question 30

Sale of asset ledger account

Answer 30

Sale of Asset (a summary account)
_____________________________________________________
Cost of asset 60000 | Accum Depn 49000
Gain on sale (I/S) 5000 | Cash 16000
65000 | 65000

           Asset                                                   Accum Depn  \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_                   \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_             Cost 60000 | Sale A/c 60000             Sale A/c   49000 | Depn 49000

  Gain on sale                                                  Income summary  \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_                 \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Inc Sum 5000 | Sale of asset 5000                        | Gain on sale 5000

Question 31

Sale of PPE (Loss on sale)

Example (Loss on sale)
Wright Ltd sells office furniture on 1 July 2017 for $16 000 cash
•Original cost was $60 000
•Accumulated depreciation to 1 January 2017 is $41 000 (i.e. book
value = $19,000)
•Depreciation expense for first 6 months of 2017 is $8 000

• Assume that office furniture was sold for $9000 rather than $16 000
• Calculation of loss on disposal

Answer 31

Cost of office furniture 60000
Less: Accumulated depreciation ($41000 + $8000) 49000
Carrying amount at date of disposal 11000
Proceeds from sale 16000
Loss on disposal of asset 5000

Question 32

How would we record loss on sale of asset?
Following up from this:
•Assume that office furniture was sold for $9000 rather than $16 000
•Calculation of loss on disposal

Cost of office furniture $60 000
Less: Accumulated depreciation ($41 000+ $8000) 49 000
Carrying amount at date of disposal 11 000
Proceeds from sale 9 000
Loss on disposal of asset $ 2 000

Answer 32

July 1 Cash 9000
Accumulated depreciation - Office furniture 49000
Loss on disposal 2000
Office furniture 60000
(To record sale of office furniture at a loss)
The Loss on disposal is closed to the income summary sheet

Question 33

Loss on sale (Sale of Asset Ledger account)

Answer 33

Sale of Asset (a summary account)
_____________________________________________________
Cost of asset 60000 | Accum Depn 49000
| Cash 9000
_______ | Loss on sale (P&L) 2000
60000 60000

              Asset                                                  Accum   Depn \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_                  \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Cost 60000 | Sale A/c 60000             Sale A/c  49000 | Depn 49000

           Loss on Sale                                     Income summary  \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_                 \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Sale/Asset 2000 | Inc Sum   2000         Loss on sale 2000 |

Question 34

What does a gain/profit (or Loss) on sale represent? (Hint: what does cost less proceeds show?) What does gain on sale mean? What does loss on sale mean?

Answer 34

Cost less proceeds = actual cost of benefit

• In our example: Office furniture cost $60000 sold for $16000 => benefit actually cost $44000
• CA= cost less our estimate of benefit used up (i.e. depreciation over the life of the asset)

In the example: accumulated depreciation was $49000
- so actual cost of benefit was $44000 by sale value while the accounting estimate was $49000 (i.e. $5000 way too much)

Gain/Profit on sale $5000 is an over-provision of depreciation
Loss on sale is an under provision of depreciation

Question 35

Traditionally accountants recorded assets at their cost
Advantage => reliability
Limitation => relevance (especially for long term assets)
Accountants/ preparers/ directors have choice when recording/ disclosing PPE:
What aspects of PPE do they have choice over when recording?

Answer 35

1) Carrying value

2) Fair value

Question 36

What is fair value, how is it determined and where is it obtained from?

Answer 36

Fair value is an estimated market value
Determined based on NPV of future cash flows of the asset or
Obtained from the market an an independent valuer or director’s valuation
Fair value: estimated market value (value of asset exchanged between willing an able buyer and seller)

Question 37

Adjusting PPE - Land revaluation
 On 20 June 2017  MNO received an independent valuation of its 
land at $1,440.000.  
• It cost $800 000 some years before. 
• What should / could MNO do?
• Consider revaluation

Answer 37

Jun 20 Land 640000
Revaluation Reserve (Equity) 640000
(To record Land at estimated valuation increment of
$640000. Carrying value/Cost was $800000)

The increase is reported in other comprehensive income in the statement of financial performance

Question 38

What is the def of agricultural activities? Provide examples of biological assets

Answer 38

Management facilitates and manages biological transformation and is capable of measuring the change in the quality and quantity of biological assets 
Examples:
- raising livestock, fish or poultry 
- forestry 
- Vineyards, orchards 

Note: AASB 116 applies to bearer-plants. AASB 141 applies to other
agricultural activities i.e. the produce of the bearer-plants

Question 39

Define biological transformation, what do we need to consider in here?

Answer 39

Biological transformation is a natural change in a biological asset. It includes the growth of living animals or plants, reduction in output due to age or disease and the production of new biological assets through a managed reproductive system

We need to consider both:

• Biological assets
• Biological produce

Question 40

Name examples of biological assets that classify into inventory, what value are these biological assets recognised at?

When are the gains less costs to sell included in profit or loss?
While the produce is still growing or still attached to the biological asset does it still form part of asset value?

Answer 40

Biological asset counted as inventory: milk, timber, lambs, grapes
Once harvested, the gain less costs to sell are included in profit or loss
While the produce is still growing or attached to the biological asset its value forms part of the value of the asset - assessed at fair value less costs to sell (Non-current assets) i.e. Fair value for biological assets may be assessed as the price of an asset in active market or a recent transaction price if no active market

Question 41

Entities in extractive industries are involved in the search and
extraction from the ground of natural substances e.g. minerals, oils,
natural gas

What happens with pre-production costs where are they charged? (are they written off? etc)
Where are values of mineral and oil reserves recorded in statement of financial position?

Answer 41

Pre-production costs capitalised and written off/depleted to cost inventory
Once production has begun, pre-production costs are charged to inventory by depletion (similar treatment for amortisation)

Value of mineral and oil reserves are not shown on face of
statement of financial position.

Question 42

Define depletion?
Here is an 
Example:
•Wallace Tin Mine contains 7M tonnes of ore 
•Capitalised pre-production costs $150M
•Residual value $10M
•Current year’s production 2M tonnes
•Depletable amount $140M ($150M –$10M)
•Depletion amount for the year = 2/7 x 140m = $40m

Answer 42

Depletion is the periodic allocation of the cost of natural resources
to reflect the units removed.

Natural resources
Depletable amount $140 mil/ 7mil (total estimated production)= $20 per tonne
Depletion rate $20 per tonne * 2 mil tonnes production this year = $40 million (depletion amount)

June 30 Inventory of ore 40mil
Accumulated depletion- tin mine 40mil
(To record depletion for the year)

Question 43

What is an impairment loss? What about recoverable amount? How do we apply the impairment test?

Answer 43

Impairment loss: amount by which the caryin gamount of an asset exceeds its recoverbale amount
Recoverable amount is higher of its fair value less costs to sell and its value in use (the present value of future cash flows expected to be derived from the asset or its cash-generating unit)

• To apply the impairment test:
o Calculate fair value less costs to sell and its Value in Use
o The recoverable amount (higher value of net fair value and value in use) must be
compared with the carrying amount
o Impairment loss is only recognised if recoverable amount is lower than the carrying
amount.

Question 44

What are intangible assets? How do we account for intangible assets?

Answer 44

Identifiable non-monetary assets that have no physical substance
Examples include:
•Patents (e.g. Apple iPod)
•Franchises (e.g. Domino’s Pizza)
•Trademarks (e.g. swoosh of Nike)
Note: intangibles cannot be recorded simply from internal activity
within the entity.

Intangible assets are separated as such:
a. Identifiable
–Must be capable of being separated or divided from an entity (whether sold, licensed, rented or exchanged) or must arise from contractual or other legal rights e.g. A licence or patent, etc.

b. Unidentifiable (arising from the purchase of another entity)
–Cannot be separated from the entity itself
–Collectively referred to as “goodwill”

Question 45

Acquired intangibles: what are the two categories?

Answer 45

Acquired separately

• Recognised at cost
• Examples: a licence to produce a drug; broadcast rights, a patent to manufacture

Acquired as part of a business acquisition
If it is identifiable as a separate asset (for example, a licence, etc.) it is recorded at fair value at acquisition date. i.e. based on expected future benefits.

The additional amount paid by the acquirer above the fair value of all the assets that are purchased is recognized on the Balance sheet as goodwill.

Question 46

Example: Acquisition of another firm - Goodwill
Company A buys Company B
• B has a Carrying Amount of Assets of $10m in total
• B’s assets include: Patent Rights of $2m; other Assets $8m
• A Fair Value of the other Assets is $9.5m and the Patent Rights has a
fair value of $2.5m.
• Total Fair Value = $12m
• A pays $15m for B
• Thus, A records the acquired other Assets at $9.5m, the Patent Rights
at $2.5 and Goodwill at $3m.

Question 47

Intangibles R&D, what is their definition and how are they distinguished? How are research costs recorded?

Answer 47

Intangibles that have not been “purchased” or “acquired”
e.g. internal creation from Research & Development

AASB 138 (par 55):
Research is regarded as an internal project where an entity cannot
demonstrate that an intangible asset exists that will generate
future economic benefits.
Research costs are classified as expenses in the period incurred.

Question 48

How are intangibles recorded? (what criteria does it need to meet?)
What are the ongoing measurement of intangibles?

Answer 48

• Technical feasibility of completing the project, and;
• Intention to complete the asset and use it or sell it, and;
• The intangible asset will generate probable future economic benefits and;
• Ability to measure reliably the expenditure attributable to the intangible
asset during its development

On-going measurement of intangibles:
• Intangibles are identified with defined or indefinite lives.
• Intangibles with definite life span are amortized (depreciated)
• Intangibles with indefinite lifespan (and Goodwill) are subject
to an annual impairment test
(i.e. an annual assessment of its value –NOT part of this course.)

Question 49

Accounting for intangible assets (amortizing intangibles with definite life)

Answer 49

Example:
• Patent costs $60 000 and has an estimated useful life of 8 years
• Annual amortisation expense: $60 000 ÷ 8 = $7500
• Recording annual amortisation

Dec 31 Amortisation Expense 7 500
Accumulated Amortisation - Patents 7 500
(To record patent amortisation)

Amortisation expense is closed to Income Summary A/c
Intangible assets with definite lives are also subject to an impairment test.

Question 50

What is the formula for average useful life of PPE assets?

Answer 50

= (Average cost of PPE assets)/ (depreciation expense)

Example:
Fantastic Holdings Limited (plant & equipment class)
($ in thousands)
(($8 618 + $7 930)/2 )/ 1413 = 5.9 years

Question 51

What is the formula for average age of PPE assets?

Answer 51

= (accum depn)/(depn exp)

Example:
Fantastic Holdings Ltd Nick Scali Ltd
$4 138/$1413 = 2.9 years $1 797/$351 = 5.1 years

Question 52

What is the formula for asset turnover?

Answer 52

= net sales / average total assets
$ sales generated for each $ invested in assets

Example:

Fantastic Holdings Ltd
$305 591/(($103 960 + $89 323)/2) = 3.2 times

Nick Scali Ltd
$78 840/(($28 326 + $29 618)/2)= 2.7 times

Question 53

UNrecorded assets - food for thought

Answer 53

Unrecorded assets –‘food for thought’
• An analyst needs to remember that the amounts shown on the
Balance Sheet are the starting point for accounting-based valuation.
• Unrecorded assets will eventually be recognized through higher
earnings or “superprofits”relative to peers.
Examples:
• excess of replacement/increased values over cost
• intangibles –development of a brand name e.g. BMW
• human capital –skills of work force, managers, etc.