Chapter 8 Flashcards
Assets that can be physically touched
TANGIBLE ASSETS
Any cash disbursement
EXPENDITURE
Any cash disbursement results in the acquisition of a non-current asset, including any additional costs involved in preparing the asset for its intended use
CAPITAL EXPENDITURE
Allocates the cost of a PPE asset (except land) over the accounting periods expected to receive benefits from its use.
DEPRECIATION
The estimated worth of the asset at the end of its estimated useful life.
RESIDUAL VALUE
The length of time that a long-lived asset is estimated to be of benefit to the current owner
USEFUL LIFE
The amount of goods or services expected to be provided
PRODUCTIVE OUTPUT
Assume that the asset will contribute to the earning of revenues in relation to the amount of output during the accounting period. Therefore, the depreciation expense will vary from year to year.
USAGE-BASED DEPRECIATION METHOD
Cost - Residual Value / Useful Life = Deprecation Expense; Depreciation Expense x Number of units produced
Units-of-Production Depreciation Equation
Cost less accumulated depreciation
CARRYING AMOUNT OR NET BOOK VALUE
Time-based depreciation method that assumes that the asset will contribute to the earning of revenues equally each time period. Therefore, equal amounts of depreciation are recorded during each year of the asset’s useful life.
STRAIGHT-LINE METHOD OF DEPRECIATION
Depreciation method that assumes that a plant and equipment asset will contribute more to the earning of revenues in the earlier stages of its useful life than in the later stages. This means that more depreciation is recorded in earlier years with the depreciation expense decreasing each year. This approach is most appropriate where assets experience a high degree of obsolescence
ACCELERATED DEPRECIATION
One type of accelerated depreciation: Carrying amount x (2/n) where n = useful life
DOUBLE-DECLINING BALANCE METHOD
A method that records half a year’s depreciation regardless of when an asset purchase or disposal occurs during the year.
HALF-YEAR RULE
Requires each major component that has a different estimated useful life than the rest of an asset to be recorded and depreciated separately
COMPONENTIZATION
Long-lived assets that arise from legal rights and does not have physical substance
INTANGIBLE ASSETS
An intangible asset that is granted when a company has an exclusive legal privilege to produce and sell a product or use a process for a specified period
PATENT
An intangible asset that confers on the holder an exclusive legal privilege to publish a literary or artistic work. In this case, the state grants control over a published or artistic work for the life of the holder (often the original artist) and for a specified period afterward. This control extends to the reproduction, sale, or other use of the material.
COPYRIGHT
An intangible asset that is a symbol or a word used by a company to identify itself or one of its products in the marketplace. Symbols are often logos printed on company stationery or displayed at company offices, on vehicles, or in advertising. A well-known example is Coke®.
TRADEMARK
An intangible asset that is a legal right granted by one company to another company to sell particular products or to provide certain services in a given region using a specific trademark or trade name.
FRANCHISE
The systematic process of allocating the cost of intangible assets over their estimated useful lives using the straight-line, double-declining-balance, units-of-production or other method deemed appropriate.
AMORTIZATION
