Accounting for Long-Lived and Intangible Assets

These flashcards cover key concepts related to long-lived and intangible assets, depreciation methods, capital vs revenue expenditures, and the disposal of plant assets.

What are long-lived assets?

Economic resources that benefit the company for more than one year.

What are the three categories of long-lived assets?

1. Plant assets (PPE), 2. Intangible assets, 3. Natural resources.

What is included in the initial recording of long-lived assets?

All costs to acquire and prepare the asset for use.

Why is land not depreciated?

Land does not have a finite useful life and retains its value.

How are lump-sum purchases allocated?

Total cost is allocated based on each asset’s relative fair value.

Define depreciation.

Systematic allocation of a plant asset’s cost to expense over its useful life.

What are the three inputs needed for calculating depreciation?

1. Cost, 2. Useful life, 3. Residual (salvage) value.

What is the formula for straight-line depreciation?

Depreciation expense per year = (Cost - Residual) ÷ Useful life.

What is the double-declining-balance method?

A depreciation method that doubles the straight-line rate and applies it to the book value.

How do you journalize depreciation expense?

Dr Depreciation Expense, Cr Accumulated Depreciation.

Differentiate capital expenditures from revenue expenditures.

Capital expenditures improve assets; revenue expenditures are for ordinary repairs and maintenance.

What must be done to dispose of a plant asset?

Update depreciation, remove asset cost from books, record cash received or paid, and record gain or loss.

How do you calculate gain or loss on sale of an asset?

Gain or loss = proceeds - book value.

What does the balance sheet presentation of long-lived assets look like?

Property, plant, and equipment shown net of accumulated depreciation.

What should students be prepared to calculate?

Depreciation under straight-line and units-of-production, carrying value, and record journal entries.