Chapt 8,9,10 Flashcards
This is usually the largest type of asset a company has
Plant assets
Tangible assets used in a company’s operations that have a useful life of more than one period
Plant assets
Assets used in operations
Plant assets
Which is a plant asset , a computer used in operations or one that is purchased for resell
The one used in operations
These assets have useful lives extending over more than one accounting period
Plant assets
Is inventory a plant asset
No
Equipment used in an event of a break down or peak period is what type of asset
Plant asset
Plant assets are recorded at cost when acquired
This is consistent with the cost principle
This includes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use
Cost
To be recorded at cost an expenditure must be
Normal
reasonable
necessary
This asset has an indefinite(unlimited) life
Land
Land improvements have a …. Life
Limited useful
Operating expense
Cost for after asset is placed in use
Plant assets purchased in a group
Lump-sum purchase
Process of allocating the cost of a plant asset to expense in the accounting periods benefitting from its use
Depreciation
Depreciation does not
Measure the decline in the assets market value
Assets physical deterioration
Factors in determining depreciation
Cost
Salvage value
Useful life
Estimate of the assets value at the end of its benefit period
Salvage value
Length of time asset is productively used in a company’s operations
Useful life
Useful life is not the same as productive life
Remember computer company example
What variables make useful life difficult to predict?
Wear and tear from use in operations
Inadequacy and obsolence
The insufficient capacity of a company’s plant assets to meet its growing productive demands
Inadequacy
What plant asset is not depreciated
Land
Charges the same amount of expense to each period of the assets useful life
Straight line method
Cost-accumulated depreciation=
Book value
Charges a varying amount to expense for each period of an assets useful life depending on its usage
Units of production depreciation
Yields larger depreciation expenses in the early years of an assets life and less depreciation in later years
Accelerated depreciation method
A rule for depreciating assets, allows straight line depreciation for some assets but requires accelerated depreciation for most kinds of assets
Modified accelerated cost recovery system (macrs)
Not acceptable for financial reporting
Revising an estimate of the useful life or salvage value of a plant asset is referred to as.ll.and is reflected in current and future financial statements, not prior statements
Change in accounting estimate
Plant assets reported on a balance sheet at their undepreciated cost (book value)not fair (market )value
…
Two types of liquid assets
Cash and investments
Additional cost of plant assets that do not materially increase the assets life or productive capabilities
Recorded as expenses and deducted from current periods revenues
Revenue expenditures or income statement expenditures
Cleaning, reprinting, adjustments, lubricants
Examples of revenue expenditures
Additional cost of plant assets that provide benefits extending beyond the current period
Debited to asset accounts and reported on balance sheets
Capital expenditures also called balance sheet expenditures
Expenditures to keep an asset in normal good operating condition
Ordinary repairs
Expenditures that make a plant asset more efficient or productive….does not always increase an assets useful life
Betterment or improvement
Expenditures extending the assets useful life beyond its original estimate
-capital expenditure
Extraordinary repairs
Ways of disposal of plant assets
Discarding
Sale
Exchange
Assets that are physically consumed when used
Natural assets
Process of allocating the cost of a natural resource to the period when it is consumed
Depletion
No physical assets used in operations that confer on their owners long term rights, privileges, or competitive advantages
Intangible assets
Types of intangible assets
Patents Copyrights Licenses Leaseholds Franchises Goodwill and trademarks
Is goodwill amortized
No,mist tested for impairment
The amount by which a company’s value exceeds the value of its individual assets and liabilities
Good will
Crucial factors of a liability
A past transaction or event
A present obligation
A future payment of assets or services
Obligations due within one year or the company’s operating cycle
Current liabilities
Examples of current liabilities
Wages payable Short term notes payable Warranty liabilities Lease liabilities Taxes payable Unearned revenues
A company’s obligations not expected to be paid within the longer of one year or the company’s operating cycle
Long term liabilities
Examples of long term liabilities
Bonds payable
Lease liabilities
Warranty liabilities
Long term notes payable
3 questions concerning liabilities
Whom to pay
When to pay
How much to pay
Written promise to pay a specified amount on a definite future date within one year or the company’s operating cycle, whichever is longer
Short term notes payable
Total compensation an employee earns including wages, salaries,commissions,bonuses, and any compensation earned before deductions such as taxes
Gross pay
Gross pay less all deductions
Net pay
Amounts withheld from an employees gross pay either required or voluntary
Payroll deductions
Payroll deductions are current liabilities until amount is transmitted to perspective places
……
Reflects a company’s stability or instability in employing workers
Merit rating
A potential obligation that depends on a future event arising from a past transaction or event
I.e. Pending lawsuit
Contingent liability
Contingent liabilities are either
Probable …record liability
Possible …disclose in note
Remote …no disclosure
Are natural disasters and the development of new competing products or services contingencies
No
Advantages of bonds
Bonds do not affect owner control
Interest on bonds is tax deductible
Bonds can increase return on equity
Disadvantages of bonds
Bonds can decrease return on equity
Bonds require payment of both periodic interest and the par value at maturity
A bond is usually issued in what amount
1,000 or 5,000
Legal document identifying the rights and obligations of both the bondholders and the issuer
Bond indenture
Rate that borrowers are willing to pay and lenders are willing to accept for a particular bond and it’s risk level
Market rate
Interest rate specified in the bond indenture
Contract rate
An obligation requiring a series of payments to the lender
Installment note
Legal agreement that helps protect a lender if a borrower fails to make required payments on notes or bonds
Mortgage
Condition of a plant asset that is no longer useful in producing goods or services with a competitive advantage because of new inventions and improvements
Obsolescence
