Chapter 8: Depreciation and amortization

accelerated depreciation

a term used to show that the reduction of an assets value happens faster at the start of its useful life than at the end

allocate

Distribute according to an existing plan

amortization

The deduction of capital expenses incurred on an intangible asset over a specific period of time

annuity depreciation

a method of depreciation centred around cost recovery and a constant rate of return upon any asset that is being depreciated

carry over

transfer a sum relating to one account to a new column, page, year

divide

split into equal parts or groups

finite life

a lifespan which is limited to a certain number of years, months, weeks or days

multiply

increase the number of by the power of x

net-book value

the current value of an asset shown in the accounting documents

salvage value

the amount of money that an asset will be worth at the end of its useful life

straight line depreciation/method

the method for reducing the value of a tangible asset by equal amounts over its useful life

sum-of-years-digits depreciation

the method for reducing the value of a tangible asset by a variable percentage depending on how long the asset has been on the books; the depreciation expense is calculated by first subtracting the salvage value from the acquisition cost. The difference is multiplied by a fractional amount, where the denominator and numerator are based on the addition of the figures in the asset’s useful life

declining balance

The depreciation is ‘accelerated’ by this method, so that the expense is greater in the first years. The salvage value is ignored in the calculation, but the asset will not be depreciated below this value.

hours of use

The expected usage of the asset is taken into account in determining the rate of the depreciation

unit of production

The expected output of the asset is taken into account in determining the rate of depreciation.

tax income/tax declaration

it’s a list of income and tax deductible expenditure for the tax authority

human capital

the perceived value of people and their skills

risk capital

money invested in a project with a high chance of failure

venture capital

money a company borrows to start up a new business

current replacement cost

how much it would cost to buy new ones

net realizable value (NRV)

how much they could be sold for

market value

the price at which something could be sold today

revalue

To record something at a different price

appreciate

To increase rather than decrease in value

obsolete

Out of date, needing to be replaced by something newer

fixed assets

Assets that will remain in the company for several years

wear out

To become used and damaged