Chapter 6: Non current assets - land, buildings, equipment Flashcards
capitalizing
To record an expenditure as an asset as opposed to expensing the expenditure.
expensing
To record an expenditure as an expense as opposed to capitalizing the expenditure.
net book value
The difference between the cost of an asset and the accumulated depreciation related to the asset. Sometimes called carrying value.
estimated salvage value
An accounting estimate of the resale or disposal value of a noncurrent depreciable asset at the end of its estimated useful life.
estimated useful life
An accounting estimate of the number of years a noncurrent depreciable asset is likely to remain in service until it is sold or otherwise disposed of.
accelerated depreciation method
A depreciation calculation method that results in greater depreciation expense in the early periods of an asset’s life than in the later periods of its life.
Accelerated Cost Recovery System (ACRS)
The method prescribed in the Internal Revenue Code for calculating the depreciation deduction; applicable to the years 1981–1986.
Modified Accelerated Cost Recovery System (MACRS)
The method prescribed in the Internal Revenue Code for calculating the depreciation deduction; applicable to years after 1986.
proceeds
The amount of cash (or equivalent value) received in a transaction.
disposal of depreciable assets formula
sales price (of fixed asset) - net book value (original cost - accumulated depreciation) = gain or loss
operating lease
A lease that does not involve any substantial attributes of ownership.
financing lease
A lease, usually long term, that has the effect of financing the acquisition of an asset. Sometimes called a finance lease, and formerly referred to as a capital lease.
present value
The value now of an amount to be received or paid at some future date, recognizing an interest (or discount) rate for the period from the present to the future date.
intangible asset
A long-lived asset represented by a contractual right, or an asset that is not physically identifiable.
amortization
The process of spreading the cost of an intangible asset over its useful life.
leasehold improvement
An amortizable intangible asset represented by the cost of improvements made to a leasehold by the lessee.
patent
An amortizable intangible asset represented by a government-sanctioned monopoly over the use of a product or process.
trademark
An amortizable intangible asset represented by a right to the exclusive use of an identifying mark.
copyright
An amortizable intangible asset represented by the legally granted protection against unauthorized copying of a creative work.
goodwill
A nonamortizable intangible asset arising from the purchase of a business for more than the fair value of the net assets acquired. Goodwill is the present value of the expected earnings of the acquired business in excess of the earnings that would represent an average return on investment, discounted at the investor’s required rate of return for the expected duration of the excess earnings.
depletion
The accounting process recognizing that the cost of a natural resource asset is used up as the natural resource is consumed.
future value
The amount that a present investment will be worth at some point in the future, assuming a specified interest rate and the reinvestment of interest in each period that it is earned.
annuity
The receipt or payment of a constant amount over fixed periods of time, such as monthly, semiannually, or annually.
discount rate
The interest rate used in a present value calculation.
