Chapter 10: Plant Assets, Natural Resources, and Intangibles

A comprehensive vocabulary review of key accounting terms for property, plant, and equipment, depreciation methods, disposals, natural resources, and intangible assets based on Chapter 10.

Property, Plant, and Equipment (PP&E)

Long-lived, tangible assets used in the operations of a business.

Plant Assets

Long-term operational assets lasting several years whose cost is allocated to an expense over expected useful life.

Depreciation

The allocation of a plant asset's cost over its useful life, matching expense against revenue generated.

Historical Cost

The actual amount paid for an asset, including purchase price plus taxes, commissions, and preparation amounts.

Cost Principle

An accounting principle stating that acquired assets and services should be recorded at their actual costs.

Land Improvements

Separate depreciable plant assets associated with land, such as fencing, paving, sprinkler systems, lighting, and signs.

Capitalized

The action of debiting (increasing) an asset account when a company acquires an asset or incurs costs that add value.

Lump-Sum Purchase

A transaction in which a company pays a single price for several assets as a group, also called a basket purchase.

Relative-Market-Value Method

A method of allocating total cost paid in a lump-sum purchase among assets based on their relative fair market values.

Capital Expenditures

Expenditures made after asset acquisition that increase the asset's capacity or efficiency, or extend its useful life.

Revenue Expenditures

Expenses incurred after asset acquisition to maintain the asset in working order, debited to an expense account.

Extraordinary Repairs

Repairs that extend an asset's useful life past its normal expected life, categorized as capital expenditures.

Obsolete

The condition of an asset when a newer asset can perform the same job more efficiently.

Useful Life

The estimated length of time or usage units that a company expects to use a plant asset.

Residual Value

The expected value of a depreciable asset at the end of its useful life.

Depreciable Cost

The cost of a plant asset minus its estimated residual value ($\text{Cost} - \text{Estimated Residual Value}$).

Straight-Line Method

A depreciation method that allocates an equal amount of depreciation expense to each year of an asset's useful life.

Book Value

An asset's historical cost minus its accumulated depreciation as reported on the balance sheet.

Units-of-Production Method

A depreciation method that allocates a varying amount of depreciation each year based on the asset's usage.

Accelerated Depreciation Method

A depreciation method that expenses more of an asset's cost near the start of its life and less near the end.

Double-Declining-Balance Method

An accelerated depreciation method that multiplies an asset's decreasing book value by twice the straight-line rate.

Modified Accelerated Cost Recovery System (MACRS)

A depreciation method required by the IRS for tax purposes, specifying asset classes and lives while ignoring residual value.

Modified Half-Month Convention

A partial-year depreciation convention where assets purchased on or before the 15th are depreciated for the full month.

Discarding Plant Assets

Removing a retired or worn-out plant asset and its associated accumulated depreciation from the books when no cash is received.

Commercial Substance

A characteristic of an asset exchange transaction where future cash flows change, requiring full recognition of gains or losses.

Natural Resources

Assets that come from the earth, such as oil reserves or timber, that are physically consumed as they are extracted or used.

Depletion

The process of allocating the cost of a natural resource to expense over its usage using the units-of-production method.

Accumulated Depletion

A contra asset account paired with natural resource accounts to track cumulative depletion expense.

Intangible Assets

Assets that have no physical form, conveying special rights or advantages to the owner.

Amortization

The allocation of the cost of a definite-lived intangible asset to expense over its useful life.

Impairment

A condition occurring when the fair value of an asset is less than its book value, requiring a loss to be recorded.

Patent

A federal government grant conveying an exclusive 20-year right to produce and sell an invention.

Copyright

The exclusive right to reproduce and sell a literary, musical, or artistic work, granted for the creator's life plus 70 years.

Trademark

An intangible asset representing distinctive identification of a product or service, also called a trade name.

Franchise

A privilege granted by a business to another entity to sell goods or services under specified conditions.

License

A privilege granted by a government entity to use public property in performing services.

Goodwill

The excess of the purchase price paid to acquire a company over the market value of its net assets (assets minus liabilities).

Asset Turnover Ratio

A performance ratio measuring the amount of net sales generated for each average dollar of total assets invested ($\frac{\text{Net Sales}}{\text{Average Total Assets}}$).

Basket Purchase

An alternative term for a lump-sum purchase where multiple assets are acquired together for a single total price.

Land Costs

Included amounts such as purchase price, brokerage commission, survey/legal fees, delinquent property taxes, title transfer fees, and clearing costs.

Building Costs

Costs incurred to acquire or construct a building, including purchase price, architectural fees, building permits, contractor charges, materials, labor, and renovation costs.

Machinery and Equipment Costs

Included amounts such as purchase price (less discounts), transportation, transit insurance, taxes, commissions, installation, and testing prior to use.

Furniture and Fixtures

Plant assets including items such as desks, chairs, file cabinets, display racks, and shelving.

Plug Figure in Depreciation

The final year's depreciation amount in double-declining-balance calculated specifically to bring book value down to residual value.

Indefinite Life Intangibles

Intangible assets, such as goodwill or certain trademarks, that are not amortized but are tested annually for impairment.

Definite Life Intangibles

Intangible assets with a limited useful life that are expensed through amortization over that life.

Steps to Record Asset Disposal

The four-step process: bringing depreciation up to date, removing disposed asset and accumulated depreciation, recording cash received/paid, and determining gain or loss.

Net Assets

The net value calculated as total market value of assets minus total market value of liabilities ($\text{Net Assets} = \text{Assets} - \text{Liabilities}$).

Data Analytics in Real Estate Management

The use of geographical, weather, and consumption data to evaluate property purchases, vacancy rates, tenant mix, and utility usage.

Gain or Loss on Disposal

The financial result determined by comparing the market value of assets received (or cash) against the book value of the asset disposed.