Kim Park a

894 words 4 pages
Case Study of financial accounting | Kim Park(A) | Long-lived Nonmonetary Assets | | Maren BorsheimQiao ChenHenry Ko | 9/27/2011 |

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This case talked about Kim Park tries to investigate the accounting principle of long lived nonmonetary assets. While we try to determine the difference in various situations, we also tries to focus on the reasoning and logic of accounting principle applied.
True Star Electronics Company
General rules:
Now an entity can be either capitalized or expensed.
Capital expenditures (CAPEX or capex) are expenditures creating future benefits. A capital expenditure is incurred when a business spends money either to buy fixed assets or to add to the value of an existing fixed asset with a useful life
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A. Cost-based models:
(1) The historical cost model:
Pros: Captures all the cost related to recruiting, hiring, training, placing, and developing the employees. The employees are viewed as an asset rather than an expense, thereby reduce the total cost on the company's balance sheet.
Cons: As an intangible asset, there will be great disparities between companies’ books and the market value of the asset (employees) as this model relies on historical costs. In addition, this model only captures the cost of the employees, not the value they have for the organization.
(2)The replacement cost model:
Pros: Good for deciding whether to dismiss or replace the employees, as this model measure the cost of replacing employees. In addition, this model focuses on the services the asset will provide rather than the precise physical asset.
Cons: Cannot know what it costs to replace human capital, as there is no precise market value.
(3) The opportunity cost model:
Pros: Tries to reveal the market price of the employees.
Cons: Difficult to measure the value of human capital, also as the value will vary between different people. Also, it is easy to manipulate.
B. Economic value models:
(1)The firm value economic model
Pros: Focus on the earnings, and will reveal the earnings generated by the employees.
Cons: Difficult to measure. Importantly, difficult to measure the effects of the co-workers and team performance.
(2) The individual earnings

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