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
