Long-Lived Assets & Depreciation Vocabulary

40 vocabulary flashcards summarizing key terms related to long-lived assets, depreciation methods, materiality, and intangibles.

Long-Lived Asset

A resource purchased for use over several years to generate revenue, not for immediate sale or consumption.

Tangible Asset

A physical long-lived asset that can be seen or touched, e.g., land, buildings, equipment.

Intangible Asset

A non-physical long-lived asset that represents legal rights, such as patents, trademarks, or copyrights.

Property, Plant & Equipment (PPE)

Balance-sheet subgroup that reports tangible long-lived assets excluding land improvements with finite lives.

Capitalized Cost (Historic Cost)

All expenditures necessary to acquire an asset and make it ready for use, recorded as the asset’s cost.

Materiality

GAAP concept allowing immaterial amounts to be treated more simply because they do not influence decisions.

Depreciation

Systematic allocation of a tangible asset’s cost to expense over the periods it benefits.

Accumulated Depreciation

Contra-asset account holding the total depreciation recorded on an asset since acquisition.

Depreciation Expense

Expense account that records the current period’s portion of an asset’s cost used up.

Residual (Salvage) Value

Estimated amount to be received when an asset is disposed of at the end of its useful life.

Useful Life

Length of time a business expects to use an asset, not necessarily its total physical life.

Depreciable Amount (Depreciation Base)

Cost of an asset minus its residual value; the total amount to be depreciated.

Book Value (Carrying Amount)

Asset’s cost minus accumulated depreciation reported on the balance sheet.

Contra-Asset Account

An account with a credit balance that reduces the related asset account, e.g., accumulated depreciation.

Straight-Line Method

Depreciation method that allocates equal expense each year: (Cost − Residual) ÷ Useful life.

Partial-Year Depreciation

Depreciation calculated only for the months an asset is in use during its first and last year.

Betterment

Capital expenditure that improves efficiency or extends life; added to the asset’s cost.

Maintenance & Repair Expense

Recurring costs that keep an asset operating as intended; expensed when incurred.

Gain on Disposal

Revenue recognized when sale proceeds exceed an asset’s book value at disposal.

Loss on Disposal

Expense recognized when sale proceeds are less than an asset’s book value at disposal.

Secondary Market

Marketplace for used assets that helps estimate residual value.

Supplies

Current assets intended to be used up within one year in operating the business.

Inventory

Goods held for resale to customers; recorded as current assets until sold.

Equipment

Tangible asset intended to be used (not sold or used up quickly) to earn revenue over multiple years.

Prepaid Insurance

Current asset representing insurance coverage purchased in advance; expensed as time passes.

Units-of-Activity Method

Depreciation based on usage measures (e.g., kilometres, copies) instead of time.

Diminishing-Balance Method

Accelerated depreciation applying a constant rate to the asset’s declining book value each year.

Unlimited-Life Intangible

Intangible asset with indefinite life, e.g., a trademark renewed every ten years; not amortized.

Limited-Life Intangible

Intangible asset with a finite useful life; cost is amortized over that life.

Trademark

Exclusive legal right to a name, logo, or slogan distinguishing goods or services.

Patent

Exclusive right to produce and sell an invention, legally lasting 20 years in Canada.

Copyright

Legal right to reproduce or sell a creative work; lasts for the author’s life plus 70 years.

Technology Asset

Intangible such as software or website development costs, usually with short useful lives.

Licensing Right

Permission granted to operate or use something for a specified period, treated as an intangible asset.

GAAP Historic Cost Assumption

Requires assets to be recorded at the amount paid to acquire and prepare them for use.

Full Disclosure Principle

GAAP rule that all information affecting stakeholder decisions must be reported.

Relevance

Qualitative characteristic requiring information to influence economic decisions.

Understandability

Qualitative characteristic requiring financial information to be clear and concise.

Ready-for-Use Date

The date an asset is available for its intended use; depreciation begins from this point.

Allocation vs. Valuation

Depreciation allocates cost over time; it is not intended to measure market value changes.