Chapter 10: Property, Plant, and Equipment and Intangible Assets: Acquisition

Vocabulary flashcards for Chapter 10 covering valuation, acquisition, R&D, and nonmonetary transactions for PP&E and intangible assets.

Property, Plant, and Equipment (PP&E)

Productive assets that derive their value from long-term use in operations rather than from resale.

Land Improvements

Enhancements to property, such as parking lots, driveways, private roads, fences, landscaping, and sprinkler systems, which have estimable useful lives and are capitalized separately from land to be depreciated over their useful lives.

Natural Resources

Productive assets physically consumed in operations, such as timber, mineral deposits, and oil and gas reserves.

Intangible Assets

Productive assets that lack physical substance and have long-term but typically uncertain benefits.

Patent

An exclusive $20$-year right granted by the U.S. Patent and Trademark Office to manufacture a product or use a process.

Copyright

An exclusive right granted by the U.S. Copyright Office to benefit from a creative work (such as a song, film, painting, photograph, or book) for the life of the creator plus $70$ years.

Trademark (Tradename)

An exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service, registered with the U.S. Patent and Trademark Office for renewable $10$-year periods.

Franchise

A contractual arrangement under which a franchisor grants the franchisee the exclusive right to use the franchisor's trademark or tradename and certain product rights.

Goodwill

The unique value of a company as a whole over and above all identifiable tangible and intangible net assets, calculated as the fair value of total consideration given minus the fair value of net identifiable assets acquired.

Asset Retirement Obligation (ARO)

A legal obligation associated with the retirement of a tangible, long-lived asset, recognized as a liability at fair value when the obligation is incurred.

Accretion Expense

An expense recognized over time that increases the asset retirement liability balance due to the passage of time using the interest method.

Lump-Sum Purchase

The acquisition of a group of assets for a single purchase price, where the total cost is allocated among individual assets based on their relative fair values.

Commercial Substance

A characteristic present in a nonmonetary asset exchange when future cash flows are expected to change significantly as a result of the transaction.

Fixed-Asset Turnover Ratio

A ratio measuring the level of sales generated per dollar of fixed assets, calculated as: $\text{Fixed-Asset Turnover Ratio} = \frac{\text{Net Sales}}{\text{Average Fixed Assets}}$

Research (R&D)

A planned search or critical investigation aimed at discovering new knowledge that will be useful in developing a new product, service, process, or technique.

Development (R&D)

The translation of research findings into a plan or design for a new product or process or for significantly improving an existing product or process.

Technological Feasibility

The milestone in software development reached when all planning, designing, coding, and testing activities necessary to establish that a product meets its design specifications are completed, after which software development costs are capitalized.

Government Grants (U.S. GAAP vs. IFRS)

Under U.S. GAAP, government grants of assets are recorded as revenue in the period received. Under IFRS, grants are either deducted from the initial cost of the asset or recorded as deferred income liabilities and recognized over the asset's useful life.

Successful Efforts Method

An accounting method for oil and gas operations where exploration costs that result in unsuccessful wells (dry holes) are expensed in the period incurred.

Full-Cost Method

An accounting method for oil and gas operations where all exploration costs, including dry holes, are capitalized as assets and depleted as reserves are extracted.