Chapter 9 Terms

Question 1

Additions and improvements

Answer 1

Costs that are incurred to increase the operating efficiency, productive capacity, or expected useful life of property, plant, or equipment.

Question 2

Amortizable amount

Answer 2

The cost minus the residual value of a finite-life intangible asset that is amortized over its useful life.

Question 3

Amortization

Answer 3

The systematic allocation of the amortizable amount of a finite-life intangible asset over its useful life.

Question 4

Asset retirement costs

Answer 4

The cost to dismantle, remove, or restore an asset when it is retired.

Question 5

Asset turnover

Answer 5

A measure of how efficiently a company uses its total assets to generate sales. It is calculated by dividing net sales by average total assets.

Question 6

Basket purchase

Answer 6

The acquisition of a group of assets for a single price. Individual asset costs are determined by allocating relative fair values.

Question 7

Capitalized

Answer 7

Capital expenditures recorded as property, plant, and equipment or other long-lived asset rather than being recorded as an expense.

Question 8

Capital cost allowance (CCA)

Answer 8

The depreciation of long-lived assets that is allowed by the Income Tax Act for income tax purposes. It is calculated on a class (group) basis and mainly uses the diminishing-balance method with maximum rates specified for each class of assets.

Question 9

Capital expenditures

Answer 9

Expenditures related to long-lived assets that benefit the company over several accounting periods.

Question 10

Commercial substance

Answer 10

An exchange of long-lived assets that results in a change in future cash flows of each party to the transaction.

Question 11

Copyright

Answer 11

An exclusive right granted by the federal government allowing the owner to reproduce and sell an artistic or published work.

Question 12

Cost model

Answer 12

A model of accounting for a long-lived asset that carries the asset at its cost less accumulated depreciation or amortization and any impairment losses.

Question 13

Depletion

Answer 13

The amortization of natural resources.

Question 14

Depreciable amount

Answer 14

The cost of a depreciable asset (property, plant, and equipment, or natural resources) less its residual value.

Question 15

Diminishing-balance method

Answer 15

A depreciation method that applies a constant rate to the asset’s diminishing carrying amount. This method produces a decreasing annual depreciation expense over the useful life of the asset.

Question 16

Double diminishing-balance method

Answer 16

Double diminishing-balance method

Question 17

Franchise

Answer 17

A contractual arrangement under which the franchisor grants the franchisee the right to sell certain products, offer specific services, or use certain trademarks or trade names, usually inside a specific geographical area.

Question 18

Goodwill

Answer 18

The excess of the amount paid to purchase another company over the fair value of the company’s net identifiable assets.

Question 19

Impairment loss

Answer 19

The amount by which an asset’s carrying amount exceeds its recoverable amount.

Question 20

Intangible assets

Answer 20

Rights, privileges, and competitive advantages that result from owning long-lived assets that have no physical substance.

Question 21

Land improvements

Answer 21

Structural additions to land that have limited useful lives, such as paving, fencing, and lighting.

Question 22

Licences

Answer 22

Operating rights to use public property, granted by a government agency to a company.

Question 23

Natural resources

Answer 23

Long-lived tangible assets, such as standing timber and underground deposits of oil, gas, and minerals, that are physically extracted and are only replaceable by an act of nature.

Question 24

Operating expenditures

Answer 24

Expenditures that benefit only the current period. They are immediately charged against revenues as expenses.

Question 25

Ordinary repairs

Answer 25

Expenditures to maintain the operating efficiency and productive life of the unit.

Question 26

Patent

Answer 26

An exclusive right issued by the federal government that enables the recipient to manufacture, sell, or otherwise control an invention for a period of 20 years from the date of the application.

Question 27

Property, plant, and equipment

Answer 27

Identifiable, long-lived tangible assets, such as land, land improvements, buildings, and equipment, that the company owns and uses for the production and sale of goods or services.

Question 28

Recoverable amount

Answer 28

The higher of the asset’s fair value, less costs to sell, and its value in use.

Question 29

Research and development (R&D) costs

Answer 29

Expenditures that may lead to patents, copyrights, new processes, and new products.

Question 30

Residual value

Answer 30

The estimated amount that a company would currently obtain from disposing of the asset if the asset were already as old as it will be, and in the condition it is expected to be in, at the end of its useful life.

Question 31

Return on assets

Answer 31

An overall measure of profitability that indicates the amount of profit that is earned from each dollar invested in assets. It is calculated by dividing profit by average total assets.

Question 32

Revaluation model

Answer 32

A model of accounting for a long-lived asset in which it is carried at its fair value less accumulated depreciation or amortization and any impairment losses.

Question 33

Royalties

Answer 33

Recurring payments that may be required under a franchise agreement and are paid by the franchisee to the franchisor for services provided (e.g., advertising, purchasing), and are often proportionate to sales.

Question 34

Straight-line method

Answer 34

A depreciation method in which an asset’s depreciable amount is divided by its estimated useful life. This method produces the same periodic depreciation for each year of the asset’s useful life.

Question 35

Tangible assets

Answer 35

Long-lived resources that have physical substance, are used in the operations of the business and are not intended for sale to customers. Tangible assets include property, plant, and equipment, and natural resources.

Question 36

Trade-in allowance

Answer 36

A price reduction offered by the seller when a used asset is exchanged for a new asset as part of the deal.

Question 37

Trademark (trade name)

Answer 37

A word, phrase, jingle, or symbol that distinguishes or identifies a particular enterprise or product.

Question 38

Units-of-production method

Answer 38

A depreciation method in which useful life is expressed in terms of the total estimated units of production or use expected from the asset. Depreciation expense is calculated by multiplying the depreciable amount per unit (cost less residual value divided by total estimated activity) by the actual activity that occurs during the year.

Question 39

Useful life

Answer 39

The period of time over which an asset is expected to be available for use, or the number of units of production (such as machine hours) or units of output that are expected to be obtained from an asset.