Chapter 9: Acquisition and Disposition of Property, Plant, and Equipment - Vocabulary

Vocabulary flashcards covering key accounting definitions from Chapter 9: Acquisition and Disposition of Property, Plant, and Equipment.

Additions

Expenditures on assets which increase or extend them.

Asset retirement obligations

Expected remediation costs incurred by a company due to its legal obligation associated to the retirement of long-lived assets.

Avoidable interest

The amount of interest cost during the period that theoretically could have been avoided if expenditures for the asset had not been made.

Capital expenditure

An expenditure on an asset whereby (1) the useful life of the asset is increased, (2) the quantity of units produced from the asset is increased, or (3) the quality of the units produced is enhanced.

Capitalization period

The period of time during which interest must be capitalized. It begins when (1) expenditures for the asset have been made, (2) activities that are necessary to get the asset ready for its intended use are in progress, and (3) interest cost is being incurred. The time ends when the asset is substantially complete and ready for its intended use.

Commercial substance

An exchange where future cash flows change as a result of the transaction.

Historical cost

The value of an asset measured by the cash or cash equivalent price of obtaining the asset and bringing it to the location and condition necessary for its intended use.

Improvements (betterments)

Expenditures that substitute a better asset for an existing asset.

Involuntary conversion

An asset's service is terminated through fire, flood, theft, condemnation or some other manner not intended by the owner of the asset.

Lump sum price

The aggregate price at which a group of assets is acquired.

Major repairs

Expenditures made to maintain plant assets whereby the expenditures benefit more than one year or one operating cycle, whichever is longer.

Nonmonetary assets

Assets whose price in terms of the monetary unit may change over time, whereas monetary assets—cash and short- or long-term accounts and notes receivable—are fixed in terms of units of currency by contract or otherwise.

Nonreciprocal transfers

Transfers of assets in one direction such as contributions (donations or gifts).

Ordinary repairs

Expenditures made to maintain plant assets in operating condition.

Property, plant and equipment

Assets that (1) are acquired for use in operations and not for resale, (2) are long-term in nature and usually subject to depreciation, and (3) possess physical substance.

Rearrangement and reinstallation costs

Expenditures intended to benefit future periods that result from rearranging or reinstalling assets.

Replacements

Expenditures that substitute a similar asset for an existing asset.

Revenue (expense) expenditure

An expenditure on an asset whereby (1) the useful life of the asset does not increase, (2) the quantity of units produced from the asset does not increase, and (3) the quality of the units produced is not enhanced.

Self-constructed assets

Assets constructed by a company rather than purchased.

Weighted-average accumulated expenditures

The construction expenditures that are weighted by the amount of time that interest cost could be incurred on the expenditure.