ENG-ECON 213: Terminologies Flashcards
It is the sum of its first cost and the present worth of all costs for replacement, operation and maintenance for a long time or forever.
Capitalized cost
First Cost + Cost of Perpetual Maintenance is equal to ___________
Capitalized Cost
It is the sum of the annual depreciation cost, interest of the first cost and the annual operating and maintenance costs.
Annual cost
Annual Depreciation Cost + Interest of the First Cost + Annual Operating & Maintenance Costs is equal to _____________
Annual Cost
It is the reduction of fall in the value of an asset or physical property during the course of its working life and due to the passage of time.
Depreciation
2 Types of Depreciation
- Normal Depreciation
- Depreciation Due to Changes in Price Levels
2 Types of Normal Depreciation
- Physical Depreciation
- Functional Depreciation
It is due to the reduction of the physical ability of an equipment or asset to produce results.
Physical Depreciation
It is due to the reduction in the demand for the function that the equipment or asset was designed or rendered.
Functional Depreciation
This type of depreciation is often called obsolescence.
Functional Depreciation
A type of depreciation where in almost all instances, it is impossible to predict prices of property and therefore, is not considered in economic studies.
Depreciation Due to Changes in Price Levels
5 Methods of Computing Depreciation
- Straight Line Method
- Sinking Fund Method
- Declining Balance Method
- Double Declining Balance Method
- Sum of the Year Digits Method
In this method of computing depreciation, it is assumed that the loss in value is DIRECTLY PROPORTIONAL to the age of the equipment or asset.
Straight Line Method
In this method of computing depreciation, it is assumed that a _______________ is established in which funds will accumulate for replacement purposes.
Sinking Fund Method
In this method of computing depreciation, it is assumed that the annual cost of depreciation is a FIXED PERCENTAGE of the book value at the beginning of the year.
Declining Balance Method
This method is sometimes known as constant percentage method or the Matheson Formula.
Declining Balance Method
The depreciation charge in this method is assumed to vary directly to the number of years and inversely to the ____________________________.
Sum-Of-Years’ Digit Method
It is the reduction of the value of certain natural resources such as mines, oil, timber, etc. due to the gradual extraction of its contents.
Depletion cost
It is an annual charge that is made for the maintenance of investment in wasting assets such as mines, oil and gas as well.
Depletion
This method is dependent on the initial cost of the property and the number of units in the property.
Unit or Factor Method
It is owned by the investors in the enterprise and they expect to earn profit from their investment. However, there is no obligation to pay them when there is no profit.
Equity capital
These are fixed obligations and failure to repay them on time usually leads to embarrassment or foreclosure of the property pledged as collateral.
Borrowed capital or debt capital
This includes all those funds which are required to make the enterprise a going concern.
Working or circulating capital
2 Kinds of Working Capital
- Initial working capital
- Regular working capital
It is the amount needed at the beginning of operations and permits the enterprise to begin functioning after it receives any income from the sides of its products or service.
Initial working capital
It is what needed when operations have been in progress for sufficient time and have been normalized. It is usually less than initial working capital.
Regular working capital
3 Types of Business Organizations
- Individual Ownership or Sole Proprietorship
- Partnership
- The Corporation
It is the simplest form of business organization, wherein the business is owned entirely by one person who is responsible for the operation. All profits are obtained from the business are his/her alone, but he must also bear all losses should they be incurred.
Individual ownership or sole proprietorship
It is an association of two or more persons for the purpose of engaging in a business for profit.
Partnership
It is a distinct legal entity, separate from the individuals who own it, and which engage in a practically any business transaction which a person could do.
The Corporation
It is considered the most important type of business organization and may have perpetual life if desired. Since it is legal entity it may use or be used in its own name.
Corporation
A corporation is capitalized through the sale of share of _________________.
Stock
2 Principal Types of Capital Stock
- common stock
- preferred stock.
It represents the ownership or the stockholders who have a residual claim on the assets of the corporation after all other claims have been settled. Net return is guaranteed on the investment.
Common Stock
This also represents ownership, and is possess the same rights as a common stock, but in addition, it enjoys certain preferences, not possesses by common stock.
Preferred stock
This has priority over common stock in the receipts of dividends, and it is usually guaranteed a fixed annual dividend, regardless of the amount of the earnings of the corporation.
Preferred stock
This is a certificate of indebtedness of a corporation usually for a period not less than 10 years, and guaranteed by a mortgage on certain assets of the entire corporation or its subsidiaries.
Bond
These
Nuts
Classification of Bonds (JCM CRED)
- Joint bonds
- Coupon bonds
- Mortgage bonds
- Collateral trust bonds
- Registered bonds
- Equipment obligation bonds
- Debenture bonds
It can be transferred from one owner to another by proper endorsement and with the consent of the issuer.
Registered bonds
These are an agreement to pay a periodic payment on a designated date.
Coupon bonds
are bonds that give the investor a claim on the company’s property or on a part of its property.
Mortgage bonds
are bonds secured by collateral (often the stocks or bonds of companies controlled by the issuing company) deposited with a trustee.
Collateral trust bonds
are bonds refer primarily to bonds whose guaranty is a lien on railroad equipment, such as freight and passenger cars, locomotives, and other railroad equipment.
Equipment obligation bonds
are bonds that are not protected by a lien.
Debenture bonds
these are sometimes two or more corporations issue bonds which are guaranteed jointly and severally by them. Each of the issuing corporation is liable for the entire bond issue in case of default.
Joint bonds
It is to be the present worth of all the amounts the bondholder will receive through his possession of the bond.
The value of a bond
It represents debt, and therefore some provision must be made for its repayment at some future time.
Bond
The bondholder will receive two types payment which are:
- Single payment
- Periodic payment
In which the owner will receive at the date of authority of the bond, which is usually equal to the par value of the bond.
Single payment
The _________ for the interest on the bond until it’s redeemed by the issuing corporation.
periodic payment
