Accounting, Chapter 10 - Plant Assets, Natural Resources, and Intangibles

Revenue Expenditures

Additional costs of plant assets that do not materially increase the asset's life or productive capabilities

Capital Expenditures

Additional costs of plant assets that provide benefits extending beyond the current period

Impairment

An intangible asset that is not amortized

Natural Resources

Assets that are physically consumed when used

Units-of-production depreciation

Charges a varying amount to expense for each period of an asset's useful life depending on its usage

Straight-line depreciation

Charges the same amount of expense to each period of the asset's useful life

Obsolescence

Condition of a plant asset that is no longer useful in producing goods or services with a competitive advantage because of new innovations and improvements

Salvage Value

Estimate of the asset's value at the end of its benefit period. Aka residual value or scrap value

Copyright

Gives the owner the exclusive right to publish and sell a musical, literary, or artistic work during the life of the creator plus 70 years, although the useful life of a copyright is usually much shorter

Land Improvements

Have limited useful lives and are used up. Ex: Parking lot surfaces, driveways, fences, shrubs, and lighting systems

Lease

Property rented under a contract

Trademark or Trade (brand) name

Symbol, name, phrase, or jingle identified with a company, product, or service.

Plant Assets

Tangible assets used in a company's operations that have a useful life of more than one accounting period. Also called plant and equipment; property, plant, and equipment; or fixed assets.

Leasehold Improvements

Alterations and improvements to the leased property

Patent

An exclusive right granted to its owner to manufacture and sell a patented item or to use a process for 20 years

Extraordinary Repairs

Expenditures extending the asset's useful life beyond its original estimate

Betterments

Expenditures that make an plant asset more efficient or productive

Ordinary Repairs

Expenditures to keep an asset in normal, good operating condition

Cost

Includes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use.

Inadequacy

Insufficient capacity of a company's plant assets to meet its growing productive demands

Indefinite Life

No legal, regulatory, contractual, competitive, economic, or other factors limit its useful life- it should NOT be amortization

Intangible Assets

Nonphysical assets that confer on their owners long-term rights, privileges, or competitive advantages

Lessee

One who secures the right to possess and use the property

Depletion

Process of allocating the cost of a natural resource to the period when its consumed

Depreciation

Process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use

Leasehold

Refers to the rights the lessor grants to the lessee under the terms of the lease

Change in an accounting estimate

Revising an estimate of the useful life or salvage value of a plant asset

Franchises and Licenses

Rights that a company or government grants an entity to deliver a product or service under specified conditions

Goodwill

The amount by which a company's value exceeds the value of its individual assets and liabilities

Useful Life

The length of time it is productively used in a company's operations

Lessor

The property owner who grants the lease

Declining balance method

Uses a depreciation rate that is a multiple of the straight line rate and applies it to the asset's beginning-of-period book value

Impairment

When there is a permanent decline in the fair value of an asset relative to its book value

Accelerated Depreciation method

Yields larger depreciation expenses in the early years of an asset's life and less depreciation in later years