Chapter 9: Reporting and Analyzing Long‐Lived Assets Flashcards
Accelerated‐depreciation method
A depreciation method that produces higher depreciation expense in the early years than the straight‐line approach.
Additions and improvements
Costs incurred to increase the operating efficiency, productive capacity, or expected useful life of a plant asset.
Amortization
The process of allocating to expense the cost of an intangible asset.
Asset turnover
Indicates how efficiently a company uses its assets to generate sales; calculated as net sales divided by average total assets.
Capital expenditures
Expenditures that increase the company’s investment in plant assets.
Capital lease
A contractual agreement allowing one party (the lessee) to use another party’s asset (the lessor); accounted for like a debt‐financed purchase by the lessee.
Cash equivalent price
An amount equal to the fair value of the asset given up or the fair value of the asset received, whichever is more clearly determinable.
Copyright
An exclusive right granted by the federal government allowing the owner to reproduce and sell an artistic or published work.
Declining‐balance method
A depreciation method that applies a constant rate to the declining book value of the asset and produces a decreasing annual depreciation expense over the asset’s useful life.
Depreciable cost
The cost of a plant asset less its salvage value.
Depreciation
The process of allocating to expense the cost of a plant asset over its useful life in a rational and systematic manner.
Franchise
A contractual arrangement under which the franchisor grants the franchisee the right to sell certain products, to perform specific services, or to use certain trademarks or trade names, usually within a designated geographic area.
Goodwill
The value of all favorable attributes that relate to a company that are not attributable to any other specific asset.
Impairment
A permanent decline in the fair value of an asset.
Intangible assets
Rights, privileges, and competitive advantages that result from the ownership of long‐lived assets that do not possess physical substance.
Lessee
A party that has made contractual arrangements to use another party’s asset for a period at an agreed price.
Lessor
A party that has agreed contractually to let another party use its asset for a period at an agreed price.
Operating lease
A contractual agreement allowing one party (the lessee) to use the asset of another party (the lessor); accounted for as a rental by the lessee.
Ordinary repairs
Expenditures to maintain the operating efficiency and expected productive life of the asset.
Patent
An exclusive right issued by the U.S. Patent Office that enables the recipient to manufacture, sell, or otherwise control an invention for a period of 20 years from the date of the grant.
Plant assets
Resources that have physical substance, are used in the operations of a business, and are not intended for sale to customers.
Research and development costs
Expenditures that may lead to patents, copyrights, new processes, and new products; must be expensed as incurred.
Return on assets
A profitability measure that indicates the amount of net income generated by each dollar of assets; computed as net income divided by average total assets.
Revenue expenditures
Expenditures that are immediately charged against revenues as an expense.
Straight‐line method
A depreciation method in which companies expense an equal amount of depreciation for each year of the asset’s useful life.
Trademark (trade name)
A word, phrase, jingle, or symbol that distinguishes or identifies a particular enterprise or product.
Units‐of‐activity method
A depreciation method in which useful life is expressed in terms of the total units of production or use expected from the asset.
