FINAL - chapter 2 - long term inventories

Question 1

long term assets…

Answer 1

have a useful life of >1 year
are bought for operations in a business
> the decision to acquire them is called CAPITAL BUDGETING
> must be capable of repeated use for at least a year
are NOT intended for being sold to customers
support the business operating cycle without being part of it (eg like materials are)

Question 2

Fixed assets

Answer 2

land
buildings
equipment
furniture
factories

Question 3

tangible assets

Answer 3

long term assets that have physical substance, and DO DEPRECIATE OVER TIME

Question 4

natural resources

Answer 4

long term assets that can be taken from land, they do NOT depreciate, they DEPLETE

Question 5

intangible assets

Answer 5

long term assets that have no physical substance but have a value based on the rights they give to owners
these do NOT depreciate, the AMORTIZE

Question 6

capital expenditure

Answer 6

expenditure for the purchase or expansion of a long term asset

Question 7

revenue expenditure

Answer 7

expenditure to repair/maintain/operate an asset

Question 8

depreciation

Answer 8

a system that spreads the cost of a long term asset over its predicted useful life

Question 9

straight line method

Answer 9

cost - residual value / estimated useful life

Question 10

SUM OF YEARS METHOD

Answer 10

2x AC (cost of assets) - SV (salvage value) / number of years of estimated life x (number of years of estimated life +1)

2 x (AC - SV) /
n x (n +1)

Question 11

PRODUCTION METHOD

Answer 11

assumes that depreciation is only the result of use, not passage of time

= cost - res. value / estimated units of useful life

Question 12

DOUBLE - DECLINING BALANCE METHID

Answer 12

Assumes that most of the asset is depreciated in its early years of use
> assets are not as efficient when older

= 100 / number of years = depreciation rate (DR)

DR x 2 = double depreciation rate