Chapter 8- Long Term Assets Flashcards
Property, Plant, Equipment
have physical substance, provide economic benefits by generating revenues
Intangible assets
no physical substance, provide economic benefit as a result of rights being owned by the company, legal rights exceed useful life
Goodwill
results from business combination, no physical substance, cannot be separated from business, provides economic benefit through average earnings of acquisition
Valuation method of PPE
reported on the F.P at carrying amount, costs include purchase amount, shipping etc, costs incurred after purchase are capitalized
Carrying amount
cost minus depreciation since the asset was acquired
Why do we depreciate?
determine the cost of each period the economic benefits are being used up, depreciation amount is expensed over it’s useful life
Straight-line method
allocates the depreciable amount evenly over time
Diminishing balance method
allocates a greater portion of the depreciable amount early in the asset’s life and less as time goes by
Units-of-production
allocates the depreciable amount per unit basis
When does depreciation stop?
once asset’s carrying amount is equal to the estimated residual value
What does impairment of PPE mean?
that the economic benefits should at least equal its carrying amount
Amortizing intangible assets
intangible assets with a limited useful life are amortized over the period
Amortization
expensing/ reduction of asset/bond over a certain period of time
