Chapter 8

Rate Formula

100% ÷ Years

Double-Declining-Balance Method Formula

= (Acquisition Cost - Accumulated Depreciation) x Rate

Ingantible Assets

Assets with no physical properties.

Research and Development Costs

Costs incurred in the discovery of new knowledge.

Capitalization of Interest

Interest on constructed assets is added to the asset account.

Acquisition Cost

The amount that includes all of the cost normally necessary to acquire an asset and prepare it for its intended use.

Straight Line Method

A method by which the same dollar amount of depra is recorded in each year of an asset's use.

Land Improvements

Costs that are related to land but that have a limited life (such as gardening, landscaping costs).

Double-Declining-Balance Method

Depreciation is recorded at twice the straight-line rate, but the balance is reduced each period.

Units-of-production Method

Depreciation is determined as function of the number of units the asset produces.

Average Age Formula

= Accumulation Depreciation ÷ Depreciation Expense

Book Value Formula

= Acquisition Cost - Accumulated Depreciation

Asset Turnover Formula

= Net Sales ÷ Average Total Assets

Average Life Formula

= PPE ÷ Depreciation Expense

Change in Estimate Formula

= Remaining Depreciable Amount ÷ Remaining Life

Change in Estimate

A change in the life of the asset or in its residual value.

Capital Expenditure

A cost that improves the asset and is added to the asset account.

Revenue Expenditure

A cost that keeps an asset in its normal operating condition and is treated as an expense.

Goodwill

The excess of the purchase price to acquire a business over the value of the individual net assets acquired.

Gain on Sale of Asset

The excess of the selling price over the asset's book value.

Accelerated Depreciation Method

A higher amount of depreciation is recorded in the early years and a lower amount in the later years.

Straight Line Method Formula

= (Acquisition Cost - Residual Value) ÷ Life

Units-of-production Method Formula

= (Acquisition Cost - Residual Value) ÷ Total Number of Units in an Asset's life

Depreciation

The allocation of the original cost of an asset to the periods benefited by its use. (Paying off & Profit)

Loss on Sale of Asset

The amount by which selling price is less than book value.

Book Value

The original cost of an asset minus the amount of accumulated depreciation.