Chapter 10 Flashcards
accelerated depreciation methods
Several alternative depreciation approaches that result in relatively more depreciation in early years of use, and smaller amounts during later years.
capital expenditures
Ordinary and necessary costs incurred to place an item of property, plant, or equipment in its condition for intended use; such amounts are included in the asset account.
capital lease
A lease that effectively transfers the risks and rewards of ownership to the lessee.
change in accounting estimate
A revision of assumptions used in a related accounting calculation (e.g., change in estimated useful life of an asset); handled prospectively by revising current and future periods.
declining balance depreciation method
An accelerated depreciation method by which a constant rate (that is a multiple of the straight-line rate) is multiplied by each period’s beginning (constantly declining) book value.
depreciable base
Cost minus salvage value; the amount of cost that will allocated to the service life.
double-declining balance depreciation
An accelerated depreciation method by which a constant rate (that is 200% of the straight-line rate) is multiplied by each period’s beginning (constantly declining) book value.
land improvements
Includes the cost of parking lots, sidewalks, landscaping, irrigation systems, and similar expenditures that are incurred to better land.
lease/lessee and lessor
Periodic payment from the user (lessee) of an asset to an owner (lessor) of the asset.
lump-sum purhcase
A single price paid for a package of assets; the purchase price must be allocated to each of the components.
materiality
A matter of accounting judgement; when amounts involved are slight, expediency may dictate waiving the technically correct alternative in lieu of a simpler approach.
Modified Accelerated Cost Recovery
A “depreciation” approach common to the tax code; generally permits more rapid “recovery” of asset cost than GAAP approaches; MACRS - pronounced “makers”
operating lease
A lease where the lessee makes periodic payments for periodic use of an asset, but does not assume the ultimate risks and rewards of owning the asset.
residual value
Amount expected to be realized at the end of an asset’s service life; “salvage value”
service life
The period of time that a depreciable asset will be in use by an entity; the time interval over which the asset will be depreciated.
