Chapter #6 Flashcards
what is the expense of a used asset called
depreciation expense doesn´t represent market value
types of long-term assets
tangible
intangible
tangible assets
assets with physical substance
e.g. property, plant, equipment
intangible assets
rights, priveledges or benefits
e.g. patens, trademarks, copyrights
what does cost of equipment and machinery include
purchase price (acquisition cost)
sales tax
shipping charges
insurance during transit paid by buyer
cost of assembling, installing and testing equipment
cost of painitng companies logo for the first time
what tangible asset does not get depreciated
land
relative fair market value method
divide cost for several assets purchased together to each of the individual assets
what does the cost of land include
purchase/acquistion price real estate commissions attoney fees preparing land for use tearing down existing structure closing cost
basket purchase of allocation
land and building are purchase together
costs are placed in seperate accounts
how does basket purchase of acquisition work
collect seperate prices and use the sum of both as total
determine % of building price from total
multiply % of building with amount paid for both to determine bulding price out of the price paid
what does to capitalize mean
to record a cost as an asset rather than as an expense
terms that describe allocation of costs
amortization - usage of intangible assets
depreciation - amortization of proprty, plant and equipment
depletion - amortization of natural resources
different methods of depreciation
straight line deprecitation
units of production depreciation
declining balance depreciation
equation for straight line method depreciation
first calculate the cost of the product
cost - salvage value = depreciable cost / useful life
straight line depreciation
most common form of allocate th cost of an asset
resulting depreciationg expense is the same every period
salvage value (residual value)
estimated value of an asset at the end of its useful life
record depreciation in income statement
depreciation expense
record depreciation in balance sheet
annual depreciation expense in retatined earnings as well as seperate account in asset -> accumulated depreciation eqipment
what is important to know when writing off intangible assets
subtrate purchase price by slavage volume = … / shorther legal or useful life
impairement
permanent decline in the fair market value of an asset such that its book value exceeds its fair market value
what is capital expenditures
expenditures made to keep an asset in good working order
remodeling and improvements
what happens if managers decide that an asset has a different useful life than first estimated
estimates of useful life and salvage value are revised but not treated as an error - no change for already calculated time
how do we calculate the gain or loss of an asset disposal will bring
compare cash received for the sale with asset´s book value at time of disposal
cash > BV -> record gain
cash < BV -> record loss
cash = BV -> no gain or loss
calculation of an assets book value
cost - accumulated depreciation
where do gains and losses of disposal of operational assets go
income statement
presentation of longterm assets on financial statements
under amount the firm paid for as current assets
exception for PPandE
what are PP and E presented as on financial statements
amortized - or depreciated cost on balance sheet
investing activities on statement of cash flow
what os use of long-term assets recorded as
depreciation-, depletion-, and amortization expense
what is return on assets
ratio that measures how well a company is using its its assets to generate icnome
equation for return on asset
return on asset = net income / average total assets
ratios that help us evaluate a firm´s use of its assets
resturn on assets
asset turnover ratio
what does the asset turnover ratio measure
how efficiently is using a company its assets to generate sales
equation of asset turnover ratio
asset turnover ratio = net sales / average total assets
