Chapter 8 Flashcards
Tangible longterm assets are classified as:
1) Property plant and equipment (Plant assets are fixed assets)
2) Natural resources
3) Land
Long term assets
Can be tangible or intangible
Tangible assets have a physical present
Intangible assets are represented by physical documents and are rights and privileges
Depreciation
Term used to recognize expense for property plant and equipment
Depletion
Term used to recognize expense for natural resources
Intangible Assets with identifiable useful lives:
Includes patents and copyrights.
Term used for recognizing expense is called amortization
Intangible assets with indefinite useful lives:
Include renewable franchises trademarks and goodwill
Historical Cost Concept
Requires that an asset be recorded at the amount paid for it.
This amount includes purchase price + any cost necessary to get the asset ready for its intended use.
Cost does not include payment for fines and damages.
Basket purchase
Acquiring a group of assets is a single transaction
Relative fair market value method:
Method used to allocate the basket purchase into a group of assets
Appraisal value
Asset 1 Asset 11
Asset 2 /Total = % of Appraisal(Basket)=
Total Allocate for Asset 1
Salvage value
The expected market value of a fully depreciated asset
3 methods to recognize depreciation expense
1) Straight Line - same amount of depreciation expense each period
2) Double - Declining - accelerated method, more depreciation expense in early years
3) Units of production - varying amounts of depreciation expenze
Depreciation expense
(asset cost - salvage value) / useful life = appreciation expense per year
Deprecation reduces assets:
Reported using a contra asset account called accumulated depreciation (has credit balance)
Book value (also called carrying value)
Associated asset account - accumulated depreciation
Depreciation expense journal entry:
Depreciation expense
Accumulated depreciation
