Lecture Notes on Plant Assets and Depreciation

These flashcards cover important concepts related to plant assets, their acquisition, depreciation methods, and intangible assets as discussed in the lecture.

What are the components of a balance sheet's assets section?

The assets section includes current assets (cash, inventory, accounts receivable), long-term assets (property, plant, equipment, intangible assets), and long-term investments (notes receivable).

What is the definition of plant assets?

Plant assets, or property, plant, and equipment, are resources with physical substance used in business operations, having a useful life of more than one year, and not intended for sale.

How is the cost of land determined?

Land cost includes the purchase price, closing costs, past unpaid property taxes, liens assumed, grading/clearing, and demolition of old structures.

What is the purpose of depreciation?

Depreciation allocates the cost of a plant asset over its useful life to expense.

What are the three factors needed to compute depreciation expense?

1. Cost of the asset, 2. Estimated useful life, 3. Estimated salvage value.

What method is used to calculate straight-line depreciation?

Depreciation Expense = (Cost - Salvage Value) / Useful Life (in years).

What is the difference between the units-of-production method of depreciation and the double-declining-balance method?

The units-of-production method expenses depreciation based on asset activity, while the double-declining-balance method accelerates depreciation, expensing more in earlier years.

What are intangible assets?

Intangible assets are long-lived, nonphysical assets offering rights and privileges resulting from ownership, recorded at cost when purchased.

What is amortization?

Amortization is the process of allocating the cost of limited-life intangibles over the asset’s useful life, similar to depreciation.

How do you record the disposal of a plant asset?

To record the disposal, eliminate the asset from the balance sheet, record any cash received, and recognize gain or loss based on the difference between the cash received and the asset's book value.