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.
