Chapter 7: Long-Lived Assets Flashcards
(43 cards)
What are Long-Term Assets?
a term used to identify P.P.E, Intangible assets, goodwill or development, construction, maintenance or repair of assets.
What are Long-lived assets listed as on the SFP?
Non-current assets
What are tangible assets?
assets that can be touched and are of physical substance, often P.P.E
What are the three kinds of tangible assets held for use in operations?
- Land
- Buildings, fixtures, equipment
- Natural resources
What are intangible assets?
Assets with no physical substance
What are some intangible assets?
Intellectual property
- copyrights
- Patents
- Licences
- Trademarks
What is goodwill?
No physical substance, it reflects favourable reputation a company has with its customers
Arises from factors like: Confidence, reputation for good service and quality, financial standing.
Only reported as asset when business purchases another business
What is fixed asset turnover ratio?
How effectively management uses P.P.E to generate revenues
Fixed asset turnover ratio = Net sale revenue/Average Net fixed assets
What is cost principle
A principle that requires all reasonable necessary costs incurred in:
acquiring a long lived asset & placing and preparing it for operation , be recorded in a designated asset account
Said costs are recorded as a part of total cost NOT RECORDED AS EXPENSES
What are some costs when acquiring a long lived asset?
non-refundable taxes
legal fees
transportation costs
installation costs
What are some costs when purchasing land?
Title fees
Sales commissions
Legal Fees
Title insurance
delinquent taxes
surveying fees
Why must land be recorded as a seperate asset?
because it does not depreciate
What are acquisition costs
Net cash paid for asset
or
When non-cash assets are used as payment, the fair value of asset given or received (Cash equivalent price)
What is capitalized interest?
The amount of interest that is included in the cost of the construction of an asset
When will interest costs on construction loans be expensed?
Once construction is completed
What is a basket purchase?
When several long-lived assets (Like Land, building & equipment) are acquired in a single transaction for a single lump sum.
Cost of each asset must be measured and recorded seperately
What are expenditures made afer an asset is acquired?
Ordinary repairs and maintenance
or
Improvements
What are ordinary repairs & maintenance?
expenditures for normal maintenance and upkeep of long lived assets that maintain productive capacity of asset.
- Recorded as expense in the current period
What are Improvements?
Expenditures that increase productive life, operating efficiency or capacity of the asset
What is depreciation?
A term used to identify and allocate the acquisition cost of using buildings and equipment that generate revenue over their productive lives
What is amount of depreciation recorded on statement of earnings
Depreciation expense
What is Carrying amount/Net book value?
The acquisition cost less the accumulated depreciation and any write-downs in asset value
What is estimated useful life?
managements estimate of assets useful economic life
What is estimated residual value?
Managements estimate of amount the company expects to recover upon disposal of asset at end of useful life less any disposal/sale costs
