Chapter 10-Plant Assets, Natural Resources, & Intangibles Flashcards
Capitalize
Recording the acquisition of land, building, or other assets by debiting (increasing) an asset account.
Relative-Market-Value Method
A method of allocating the total cost of multiple assets purchased at one time. Total cost is divided among the assets according to their relative market values
Capital expenditure
Debited to an asset account because it increases the asset’s capacity or efficiency or extends the useful life.
Revenue Expenditure
An expenditure that does not increase the capacity or efficiency of an asset or extend its useful life. Revenue expenditures are debited to an expense account
Obsolete
An asset is considered obsolete when a newer asset can perform the job more efficiently than the old
Residual value
The expected value of a depreciable asset at the end of its useful life.
Depreciable cost
Depreciable cost = Cost - Residual Value
Straight-Line Depreciation
SLD = (cost-residual value)/useful life
Depreciation per Unit
Depreciation per unit: (cost-residual value)/useful life in units
Units of Production
UoP: depreciation per unit x current year usage
Double-Declining Balance
DDB: Book value/useful life x 2
Book Value
Book Value: cost - accumulated depreciation
Revised depreciation
Revised depreciation: (book value - revised residual value)/revised useful life remaining
Natural Resource
An asset that comes from the earth and is consumed
Depletion
The process by which business spread the allocation of a natural resource’s cost over its usage
Intangible Asset
An asset with no physical form that is valuable because of the special rights it carries
Amortization
The prices by which businesses spread the allocation of an intangible asset’s cost over its useful life
Impairment
A permanent decline in asset value
Patent
An intangible asset that is a federal government grant conveying an exclusive 20-year right to produce and sell a process, product, or formula
Copyright
Exclusive right to reproduce and sell a book, musical composition, film, other work of art, or intellectual property
Trademark
An asset that represents distinctive identifications of a product or service
Franchise
Privilege granted by a business to sell a product or service under specified conditions
License
Privilege granted by a government to use public property in performing services
Goodwill
Excess of the cost of an acquired company over the sum of the market values of its net assets (assets - minus)
Asset turnover ratio
Measures how efficiently a business uses its average total assets to generate sales. Net sales/average total assets.
Commercial Substance
A characteristic of a transaction that causes a change in future cash flows
