ACC 222 — Chapter 10: Plant Assets, Depreciation, Natural Resources & Intangibles

A complete set of vocabulary flashcards covering basic and advanced concepts of plant assets, various depreciation methods, natural resources, and intangible assets as presented in Chapter 10.

Accelerated Depreciation Method

A depreciation approach that allocates more expense in the early years of an asset's life and less in later years; useful when assets lose value faster upfront.

Amortization

The process of systematically allocating the cost of an intangible asset over its useful life — basically depreciation, but for intangibles like patents or copyrights.

Asset Turnover Ratio

A financial ratio that measures how efficiently a company uses its assets to generate revenue. Formula: $\text{Net Sales} \div \text{Average Total Assets}$

Book Value

The current recorded value of an asset on the balance sheet. Formula: $\text{Cost} - \text{Accumulated Depreciation}$

Capital Expenditure

Money spent to acquire, improve, or extend the life of a long-term asset; these costs are capitalized (recorded as assets) rather than expensed immediately.

Capitalize

To record a cost as a long-term asset on the balance sheet rather than as an immediate expense on the income statement; the cost is then expensed gradually over time through depreciation or amortization.

Commercial Substance

A concept used in asset exchanges where a transaction is recognized for gains/losses if it significantly changes the company's future cash flows.

Copyright

An intangible asset giving the creator exclusive legal rights to reproduce and sell original work; lasts the creator's life + $70\,\text{years}$, typically amortized over its useful life.

Cost Principle

An accounting principle stating that assets should be recorded at their original purchase cost, including all costs necessary to get the asset ready for use.

Depletion

The process of allocating the cost of a natural resource (like oil, timber, or minerals) as it is extracted and used up.

Depreciable Cost

The portion of an asset's cost that is actually depreciated over time. Formula: $\text{Cost} - \text{Residual Value}$

Depreciation

The systematic allocation of a tangible asset's cost over its useful life, reflecting gradual wear, tear, and usage; it is not a cash expense.

Double-Declining-Balance Method (DDB)

An accelerated depreciation method that applies twice the straight-line rate to the asset's remaining book value each year. Formula: $\text{Book Value} \times (2 \div \text{Useful Life})$

Extraordinary Repair

A major, infrequent repair that extends an asset's useful life beyond the original estimate, treated as a capital expenditure added to the asset's book value.

Franchise

An intangible asset representing a contractual right granted by a franchisor to operate a business using their name, brand, and systems.

Goodwill

An intangible asset arising when one company purchases another and pays more than the fair market value of net identifiable assets; it is not amortized but tested annually for impairment.

Impairment

Occurs when an asset's book value exceeds its fair market value and the company can no longer expect to recover that book value, necessitating a write-down and loss record.

Intangible Asset

A long-term asset with no physical form that provides economic value, such as patents, copyrights, trademarks, franchises, and goodwill.

Land Improvement

Additions made to land that have a limited useful life and can be depreciated, such as parking lots, fences, sidewalks, and landscaping.

License

An intangible asset representing a legal agreement granting the right to use someone else's product, brand, or intellectual property for a specified period.

Modified Accelerated Cost Recovery System (MACRS)

The depreciation method required by the IRS for tax purposes in the U.S. which assigns assets to specific recovery periods using accelerated rates.

Natural Resource

A physical asset found in nature (e.g., oil, coal, timber) that is consumed or extracted over time, recorded at cost, and depleted as used.

Obsolete

When an asset is no longer useful or relevant due to technological advances or changes in demand, even if it is not physically worn out.

Patent

An intangible asset giving an exclusive legal right to an invention for $20\,\text{years}$; amortized over its useful life or legal life, whichever is shorter.

Property, Plant, and Equipment (PP&E)

The category of long-term tangible assets used in business operations, also called plant assets or fixed assets.

Relative-Fair-Value Method

A method used in lump-sum purchases to allocate total cost to individual assets based on their proportional fair market value.

Residual Value

Also called salvage value; the estimated amount a company expects to receive when selling or disposing of an asset at the end of its useful life.

Revenue Expenditure

A cost expensed immediately in the current period because it only benefits the current period, such as routine repairs and maintenance.

Straight-Line Method

The simplest depreciation method, allocating an equal amount of expense each year. Formula: $(\text{Cost} - \text{Residual Value}) \div \text{Useful Life}$

Trademark

An intangible asset identifying a company's brand, protected for $10\,\text{years}$ and renewable indefinitely.

Units-of-Production Method

A depreciation method basing expense on actual usage. Formula: $\text{Depreciable Cost} \div \text{Total Estimated Units} \times \text{Units Produced}$

Useful Life

The estimated period of time or units of production over which a company expects to use an asset.