Long Lived Assets and Amortization Flashcards
Why is depreciation an accrual cost?
Because all the goods and services consumed by a company in a number of periods are accrual costs
What is the physic life?
It is the time which passes between the acquisition and the moment in which the asset becomes unusable for deterioration
What is the economic life?
It is the period of time that passes between the asset’s acquisition and the moment in which the asset becomes unusable for obsolescence
Depreciation expense = ?
[(Original Cost) - (Residual Value wanted at the end)] / (Service Life)
What is service life?
It is the number of accounting periods over which the assets will be useful to the entity that owns it
Which are the three types of depreciation?
Straight line method, accelerated method and units-of-production method
How does the stright line depreciation method work?
It writes off a part of the cost at a costant rate
How does the accelerated depreciation method work?
It writes off more of the asset cost the first years it is used as it is supposed it will produce more when it’s new and less while it gets older
How does the units-of-cost depreciation method work?
It writes off a quantity of the cost based on how much the asset is used
Net Cost = ?
(Original Cost) - (Wanted Residual Value)
What is the impairment?
It is a corrective entry that writes off the fair value of an asset that generates less income then its book value
What is the capitalization?
It is an entry that occurs when the development of new products or new production processes can take future advantages. It has to be amortised.
Which one between extraordinary and ordinary maintenance should be capitalized?
Extraordinary, as it adds new functions or extends the service life of a product
Are intangible fixed assets amortizable?
Only if they have a limited service life
Fair Value of the Net Assets = ?
Total Assets - Total Liabilities
