Chapter 9 Flashcards
Plant or Long-term assests
- long-lived, tangible assets
- used in the operations of the business
- value and usefulness decline as the assets are used
depreciation
is the allocation of a plant asset’s cost over its useful life
-all plant assets are depreciated with the exception of land
residual value
is the expected value of a depreciable asset at the end of its useful life
straight-line method
allocates an equal amount of depreciation each yeat
historical cost
the amount paid for the asset
is what the plant asset is recorded
lump sum purchase
a company may pay a single price for several assets as a group
capital expenditures
increase the asset’s capacity or efficiency or extends the asset’s useful life
revenue expenditures
expenses incurred to maintain the asset in working order
depreciation of a plant asset is based on three main factors
capitalized cost, estimated useful, estimated residual value
depreciable cost
=cost-estimated resdual value
straight-line method formula
(cost-residual value)/useful life
units-of-production method
allocates a varying amount of depreciation each year based on the asset’s usage
accelerated depreciation method
expenses more of the asset’s cost near the start of an asset’s life and less at the end of its useful life
natural resources
are assets that come from the earth that are consumed
depletion
is the process by which businesses spread the allocation of a natural resource’s cost to expense over its usage
intangible assets
are assets that have no physical form
amortization
is the allocation of the cost of an intangible asset to expense over the shorter of its useful life or legal (straight-line method)
-definite life
Impairment
occurs when the fair value of an asset is less than the book value
-indefinite value
patent
is an intangible asset that is a federal grant conveying an exclusive 20-year right to produce and sell an invention
copyright
is the exclusive right to reproduce and sell a book, a musical composition, a film, another work of art or intellectual property
trademark
is an asset that represents distinctive identifications of products or services
-nike
franshises
are privileges granted by a business to sell goods or service under specified conditions
licenses
are privileges granted by a government to use public property in performing services
goodwill
is the value paid above the net worth of a company’s assets and liabilities
