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Financial Accounting > Chapter 7: Long-Lived Assets > Flashcards

Chapter 7: Long-Lived Assets Flashcards

1
Q

What are Long-Term Assets?

A

a term used to identify P.P.E, Intangible assets, goodwill or development, construction, maintenance or repair of assets.

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2
Q

What are Long-lived assets listed as on the SFP?

A

Non-current assets

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3
Q

What are tangible assets?

A

assets that can be touched and are of physical substance, often P.P.E

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4
Q

What are the three kinds of tangible assets held for use in operations?

A
  • Land
  • Buildings, fixtures, equipment
  • Natural resources
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5
Q

What are intangible assets?

A

Assets with no physical substance

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6
Q

What are some intangible assets?

A

Intellectual property
- copyrights
- Patents
- Licences
- Trademarks

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7
Q

What is goodwill?

A

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

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8
Q

What is fixed asset turnover ratio?

A

How effectively management uses P.P.E to generate revenues

Fixed asset turnover ratio = Net sale revenue/Average Net fixed assets

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9
Q

What is cost principle

A

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

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10
Q

What are some costs when acquiring a long lived asset?

A

non-refundable taxes
legal fees
transportation costs
installation costs

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10
Q

What are some costs when purchasing land?

A

Title fees
Sales commissions
Legal Fees
Title insurance
delinquent taxes
surveying fees

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11
Q

Why must land be recorded as a seperate asset?

A

because it does not depreciate

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12
Q

What are acquisition costs

A

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)

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13
Q

What is capitalized interest?

A

The amount of interest that is included in the cost of the construction of an asset

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14
Q

When will interest costs on construction loans be expensed?

A

Once construction is completed

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15
Q

What is a basket purchase?

A

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

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16
Q

What are expenditures made afer an asset is acquired?

A

Ordinary repairs and maintenance
or
Improvements

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17
Q

What are ordinary repairs & maintenance?

A

expenditures for normal maintenance and upkeep of long lived assets that maintain productive capacity of asset.
- Recorded as expense in the current period

18
Q

What are Improvements?

A

Expenditures that increase productive life, operating efficiency or capacity of the asset

19
Q

What is depreciation?

A

A term used to identify and allocate the acquisition cost of using buildings and equipment that generate revenue over their productive lives

20
Q

What is amount of depreciation recorded on statement of earnings

A

Depreciation expense

21
Q

What is Carrying amount/Net book value?

A

The acquisition cost less the accumulated depreciation and any write-downs in asset value

22
Q

What is estimated useful life?

A

managements estimate of assets useful economic life

23
Q

What is estimated residual value?

A

Managements estimate of amount the company expects to recover upon disposal of asset at end of useful life less any disposal/sale costs

24
Q

What are the three most common depreciation methods?

A

Straight line
Units of production
Declining Balance

25
Q

What is the straight line depreciation formula?

A

Depreciation expense per year = (Cost - residual value) / (useful life in years)

26
Q

What is Units of production depreciation?

A

((Cost - Residual Value) / Estimated total production) x Actual production = Depreciation expense

27
Q

What is accelerated depreciation?

A

an asset that is more efficient in its earliest years, declining in later years

28
Q

What is double declining balance formula

A

(Cost - Accumulated depreciation) x (2 / Useful life) = Depreciation expense

29
Q

What happens if depreciation amount goes past residual value?

A

Only the amount of depreciation expense needed to make carrying amount equal to the residual value is recorded

30
Q

What happens when a there is a change in estimate?

A

Substitutions are made
- Carrying amount of original acquisition cost
- New residual value for original amount
- Estimated remaining useful life for original estimated useful life

31
Q

What is a fair value of an asset

A

a value which reflects the amount at which an asset can be bought or sold between two parties.

32
Q

What are the two steps for measuring asset impairment?

A

Step 1:Test for impairment
Step 2: Computation of impairment loss

33
Q

What is the test fair impairment?

A

If carrying amount > Recoverable amount, Asset = Impaired

34
Q

What is the computation of impairment loss

A

Impairment loss = Carrying amount - recoverable amount

35
Q

What are the disposals of P.P.E?

A

Sale
Trade-in
Retirement

36
Q

What are the journal entries to dispose of a depreciable asset?

A
  • An adjusting entry to update the depreciation expense & accumulated depreciation accounts
  • An entry to record the disposal
37
Q

What is amortization?

A

The straight line depletion of an intangible asset with a definite life over its useful life

Usually does not hold a residual value

38
Q

What is a patent?

A

An exclusive right granted byh the Canadian Intellectual Property office for a period of 20 years

39
Q

What is copyright?

A

protection granted by the Canadian intellectual property office

40
Q

What is a trademark?

A

An exclusive legal right to use a name image or slogan.

41
Q

What is a franchise?

A

a contractual right to sell certain products or services, use trademarks, or perform activities in a geographical region

42
Q
A

Financial Accounting (4 decks)

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