FINALS 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
It is the sum of the annual depreciation cost, interest of the first cost and the annual operating and maintenance costs.
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
Enumerate the types of depreciation.
- Normal Depreciation
a. Physical Depreciation
b. Functional Depreciation - Depreciation Due to Changes in Price Levels
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
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
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.
Straigh Line Method (SLM)
In this method of computing depreciation, it is assumed that a sinking fund is established in which funds will accumulate for replacement purposes.
Sinking Fund Method (SFM)
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 (DBM)
Other names for Declining Balance Method (DBM)
- Constant percentage method
- Matheson Formula
The depreciation charge in this method is assumed to vary directly to the number of years and inversely to the sum of the years’ digit.
Sum-of-the-Year’s Digit Method (SYDM)
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
It includes all those funds which are required to make the enterprise a going concern.
Working Capital
Two 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
It is the simplest form of business organization, wherein the business is owned entirely by one person who is responsible for the operation.
Individual ownership or sole propriertorship
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 propriertorship
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.
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
