Chapter 7: Plant Assets, Natural Resources, and Intangibles
straight line method
(cost - residual value) / years of use
depreciable cost =
asset cost - estimated residual value
units of production method
depreciation amount assigned to each unit of output
in recording depreciation what account is debited and credited
depreciation expense is debited accumulated depreciation is credited
depreciation expense is recorded on the
income statement
capital expenditures
increase an assets capacity or extend useful life
franchises and licenses often have ___ lives
indefinite
impairment
loss in value of intangibles with indefinite lives
amortization
reduction in value of intangible assets
UOP equation
(cost - residual value)/ units of production
ROA ratio
(net income) / (average total assets)
straight line method
an equal amount of depreciation over years
at what value are plant assets recorded as on the balance sheet
book value
accumulated depreciation is a ____ ___ account
contra asset
how to calculate the book value of asset
cost - depreciation
book value =
cost -accumulated depreciation
if an extracted natural resource is sold its expense becomes
cost of goods sold
you only depreciate ____ cost
depreciable
what are land improvements subject to
depreciation
relative sales value method
determining the individual market value of assets when purchasing 'basket' of assets for lump sum amount
what are examples of land and leasehold improvements
driveway, fence, parking lot
patent
exclusive government grant which give the holder the exclusive right to sell an invention for 20 years
copyright
exclusive rights to sell a book, musical composition, film, work of art
amortization expense
expense associated with intangibles with finite lives
what are the two categories of intangible assets
finite lives - amortized indefinite lives-impairment
what does total asset turnover show us
how many sales dollars are generated for each dollar of assets invested
what does net profit margin ratio show us
how much every sales dollar generate in profit
what doe the ROA ratio show
how much the company earned for each dollar invested
if an extracted natural resource is not sold the amount become ___
inventory
what is not included in the cost of a plant asset
land improvement
impairment loss =
net book value - fair value
impairment
net book value of asset < future cash flows
net profit margin ratio
net income / net sales
total asset turnover
net sales / average total assets
how would you depreciate a leasehold improvement
over the time period which is less a. useful life b. lease term
goodwill
paying more to acquire a company than its net assets make it worth because another company has abnormal earning power
franchises and licenses
privileges granted to private businesses or governments to sell a product or service
what costs are included in the cost of a plant asset
purchase price, taxes, commissions, and other amounts paid to make the land usable
an assets final book value
residual value
what type of depreciation method is the most popular
straight line depreciation
which depreciation method would you use for assets that generate revenue evenly over time
straight line method
how is depletion expense computed
the same way as units of production method
non-monetary exchange
trading old assets for new ones
depletion
transferring the cost of natural resources to expense
which depreciation method would you use for assets that wear out because of physical use
units of production
