Chapter 8 Flashcards
4 properties of a plant asset
- physical substance
- used in the operations
- not intended for sale
- provide service (except for land)
Revenue expenditure
Costs incurrent to acquire a plant asset that are expensed immediately
Capital expenditures
Costs included in a plant asset account
Cash equivalent price of a plant asset is
Fair value of asset given up or fair value of asset received
Depreciation
Process of allocating to expense the cost of a plant asset over its useful life
DOES NOT apply to land
3 methods of depreciation
- straight line
- declining balance
- units of activity
Depreciable Cost
Cost - salvage value
Impairments
Permanent decline in the fair value of an asset
Companies dispose of plant assets in 3 ways…
Sale, retirement or exchange
How to record a retirement of an asset
Decrease full value of equipment and acc. depreciation, put different in expense as a loss on disposal
How to account for limited life intangibles
Allocate cost over the useful life in the way of amortization (similar to straight line depreciation)
Patents
Right to sell or control an invention for 20 years
Cost in developing a patent is recorded as…
Research and development expense
Copyrights
Gives owner right to reproduce or sell artistic work for life of the creator plus 70 years
Trademarks/tradenames
Legal protection for indefinite number of 10 year periods, no amortization
