Chpt 7: Long-Term Operating Assets

Fixed Assets

Long-term tangible assets owned and used for normal company operations.

Acquisition Cost of Fixed Assets

All amounts spent to get the asset in place and ready for use.

Unnecessary Acquisition Costs

Expenses like vandalism or installation mistakes not included in asset cost.

Revenue Expenditures

Maintenance and repair costs that primarily benefit the current period.

Capital Expenditures

Costs that improve an asset or extend its useful life.

Depreciation

Periodic recording of the cost of fixed assets as an expense over time.

Land Depreciation

Land does not depreciate because it does not lose its ability to provide services.

Accumulated Depreciation

A contra asset account with a negative value reported under assets.

Depreciable Cost

The initial cost of an asset minus its estimated residual value.

Straight-Line Depreciation

A method providing the same amount of depreciation expense each year.

Double-Declining-Balance Depreciation

An accelerated depreciation method yielding higher expense in the first year.

MACRS

A tax depreciation system specifying eight classes of useful lives.

Methods of Fixed Asset Disposal

Assets no longer useful can be discarded, sold, or traded.

Book Value

The initial purchase cost of an asset minus its accumulated depreciation.

Natural Resources

Naturally occurring assets removed and sold over more than one year.

Depletion Expense

The cost allocated for a portion of a natural resource removed.

Intangible Assets

Non-physical assets acquired through innovative activities or purchase.

Patent Life

Exclusive federal government rights issued for a 20-year period.

Copyright Duration

Federal exclusive rights lasting for 70 years beyond the author's death.

Trademark Amortization

Trademarks are not amortized and have 10-year renewable registration.

Goodwill

An unamortized intangible asset created from favorable factors like reputation and location.

Asset Turnover Ratio

A metric measuring how efficiently a company uses operating assets to generate sales.

Asset Turnover Formula

Sales divided by the average of long-term operating assets.