Accounting One, Chapter 9

Declining-balance depreciation

When the asset is more efficient (generates more revenues) in early years but less so over time, also used for tax.

Units-of-production depreciation

When usage varies each period.

Ordinary repairs and maintenance:

Expenditures for the routine maintenance and upkeep of long-lived assets. Because these expenses are matched to revenues, ordinary repairs and maintenance are sometimes called revenue expenditures

Intangible assets

Long-lived assets that have special rights but no physical substance. Legal documents describe the rights.

Straight-line depreciation

When usage is the same each period.

Intangible assets

Trademarks, Copyrights, Patents, Technology, Licensing rights, Franchises, Goodwill.

Two types of maintenance:

1. Ordinary repairs and maintenance 2. Extraordinary repairs and maintenance.

Capitalized

Accountants say costs have been capitalized when they are recorded as assets (rather than as expenses).

General Rule for Tangible assets under the Cost Principle

All reasonable and necessary costs to acquire and prepare an asset for use should be recorded as a cost of the asset.

Useful Life

An estimate of the asset's useful economic life to the company (not its economic life to all potential users). may be expressed as years or units of capacity, such as the number of units it can produce or the number of miles it will travel. Land is the only tangible asset that's assumed to have an unlimited useful life. Land is not depreciated.

Land improvements

Include the sidewalks, pavement, landscaping, fencing, lighting, and sprinkler systems that are added to improve the usefulness of land.

Asset Cost

Includes all the asset's capitalized costs, including the purchase cost, sales tax, legal fees, and other costs needed to acquire and prepare the asset for use.

Depreciation

The allocation of the depreciable cost of long-lived tangible assets over their productive lives using a systematic and rational method.

Acquisition

The cost of intangible assets are recorded as assets only if they have been purchased.

Residual Value

(or salvage value) is an estimate of the amount the company will receive when it disposes of the asset.

Depreciable cost

Asset cost - residual value

Long-lived assets

Business assets acquired for use over one or more years.

Tangible Assets

Long-lived assets that have physical substance. AKA: Fixed assets because they are often fixed in place.

Extraordinary repairs and maintenance:

Occur infrequently, involve large expenditures, and increase an asset's usefulness through enhanced efficiency, capacity, or lifespan. AKA Capital Expenditures.

Impairment

Occurs when events or changed circumstances interfere with a company's ability to recover the value of the asset through future operations.

Construction in progress

includes the costs of constructing new buildings and equipment.