Chapter 7 Flashcards
Property, Plant, and Equipment category consists of…
land land improvements buildings equipment natural resources
Land Costs include…
attorney fees real estate commissions title/title search recording fees back taxes clearing filling leveling the land removing buildings
Patent
an exclusive right to manufacture a product or use a process
Copyrights
right of protection to the creator of a published work (ex: song, film, painting, photo, book, or software)
Trademark
word, slogan, or symbol that identifies a company, product, or service
Addition
adding a new major component to an existing asset
Improvements
cost of replacing a major component of an asset
Materiality
how likely it is to influence a decision
Cost Allocation (accounting definition)
Allocation of an asset’s cost to an expense over time
Depreciation
allocating the cost of an asset to an expense over its service life
Accumulated Depreciation
contra-asset account that reduces the asset
Book Value
original cost - accumulated depreciation
Residual Value
amt company expects to receive when selling asset at end of its service life
Depreciation Methods
straight line
declining balance
activity based
Straight-Line Depreciation Method
takes an equal amt of depreciation each year (most common)
Declining Balance Depreciation Method
more depreciation is taken in the early yrs than in later yrs
Activity-Based Depreciation Method
calculates depreciation based on use of the asset (ex: miles driven on a car)
Depreciation Expense Formula
(asset cost - residual value) / service life
Double-Declining Depreciation Rate
2 / estimated service life
Depreciation Rate per Unit
(asset cost - residual value) / total units expected to be produced
Return on Assets
net income / avg total sales
Asset Turnover Ratio
net sales / avg total assets
** indicates sales per dollar of assets invested
Profit Margin Ratio
net income / net sales
**indicates earnings per dollar of sales
