Chapter 8 mcgraw hill financial Accounting

Accelerated Depreciation Method

Method that produces larger depreciation charges in the early years of an asset's life and smaller charges in its later years.

Amortization

Process of allocating the cost of an intangible asset to expense over its estimated useful life.

Asset Book Value

Asset's acquisition costs less its accumulated depreciation (or depletion, or amortization); also sometimes used synonymously as the carrying value of an account.

Betterments

Expenditures to make a plant asset more efficient or productive

Capital Expenditures

Additional costs of plant assets that provide material benefits extending beyond the current period; also called balance sheet expenditures

change in an accounting measurement

Change in an accounting estimate that results from new information, subsequent developments, or improved judgment that impacts current and future periods.

Copyright

Right giving the owner the exclusive privilege to publish and sell musical, literary, or artistic work during the creator's life plus 70 years.

Cost

All normal and reasonable expenditures necessary to get an asset in place and ready for its intended use.

declining balance method

Method that determines depreciation charge for the period by multiplying a depreciation rate (often twice the straight-line rate) by the asset's beginning-period book value.

Depletion

Process of allocating the cost of natural resources to periods when they are consumed and sold.

Depreciation

Expense created by allocating the cost of plant and equipment to periods in which they are used; represents the expense of using the asset.

Extraordinary Repairs

Major repairs that extend the useful life of a plant asset beyond prior expectations; treated as a capital expenditure.

Franchises

Privileges granted by a company or government to sell a product or service under specified conditions.

goodwill

Amount by which a company's (or a segment's) value exceeds the value of its individual assets less its liabilities.

impairment

Diminishment of an asset value.

Inadequacy

Condition in which the capacity of plant assets is too small to meet the company's production demands.

Indefinite Life

Asset life that is not limited by legal, regulatory, contractual, competitive, economic, or other factors.

Intangible Assets

Long-term assets (resources) used to produce or sell products or services; usually lack physical form and have uncertain benefits.

Land Improvements

Assets that increase the benefits of land, have a limited useful life, and are depreciated.

Lease

Contract specifying the rental of property.

Leasehold

Rights the lessor grants to the lessee under the terms of a lease.

Leasehold Improvements

Alterations or improvements to leased property such as partitions and storefronts.

Lessee

Party to a lease who secures the right to possess and use the property from another party (the lessor).

Lessor

Party to a lease who grants another party (the lessee) the right to possess and use its property.

Licenses

Privileges granted by a company or government to sell a product or service under specified conditions.

Limited Life

Length of time an asset will be productively used in the operations of a business; also called service life or limited life.

Modified Accelerated Cost Recovery System (MACRS)

Depreciation system required by federal income tax law.

Natural Resources

Assets physically consumed when used; examples are timber, mineral deposits, and oil and gas fields; also called wasting assets.

Obsolescence

Condition in which, because of new inventions and improvements, a plant asset can no longer be used to produce goods or services with a competitive advantage.

Ordinary Repairs

Repairs to keep a plant asset in normal, good operating condition; treated as a revenue expenditure and immediately expensed.

Patent

Exclusive right granted to its owner to produce and sell an item or to use a process for 17 years.

Plant Asset Age

Plant asset age is an approximation of the age of plant assets, which is estimated by dividing accumulated depreciation by depreciation expense.

Plant Assets

Tangible long-lived assets used to produce or sell products and services; also called property, plant and equipment (PP&E) or fixed assets.

Revenue Expenditures

Expenditures reported on the current income statement as an expense because they do not provide benefits in future periods.

Salvage Value

Estimate of amount to be recovered at the end of an asset's useful life; also called residual value or scrap value.

Straight Line Depreciation

Method that allocates an equal portion of the depreciable cost of plant asset (cost minus salvage) to each accounting period in its useful life.

Total Asset Turnover

Measure of a company's ability to use its assets to generate sales; computed by dividing net sales by average total assets.

Trademark or Trade Name

Symbol, name, phrase, or jingle identified with a company, product, or service.

Units of production depreciation

Method that charges a varying amount to depreciation expense for each period of an asset's useful life depending on its usage.

Useful Life

Length of time an asset will be productively used in the operations of a business; also called service life or limited life.