Intermediate Accounting Chapter 11 - Utilization and Disposition of PP&E and Intangible Assets

Vocabulary flashcards covering key concepts, methods, definitions, and rules from Chapter 11: Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition.

Cost Allocation

The systematic process of allocating the acquisition cost of long-lived assets to the periods benefited by their use, categorized as depreciation for plant and equipment, depletion for natural resources, and amortization for intangible assets.

Depreciation

The cost allocation process specifically applied to property, plant, and equipment.

Depletion

The cost allocation process specifically applied to natural resources as they are extracted.

Amortization

The cost allocation process specifically applied to finite-life intangible assets.

Service Life

The estimated amount of use or time that a company expects to receive from an asset before its disposal.

Allocation Base

The cost of an asset expected to be consumed during its service life, calculated as initial acquisition cost minus estimated residual (salvage) value.

Residual Value

The amount expected to be received for an asset at the end of its service life, less any anticipated disposal costs.

Straight-Line Method

A time-based depreciation method that allocates an equal amount of the depreciable base to each year of an asset's service life using the formula $\text{Annual Depreciation} = \frac{\text{Cost} - \text{Estimated Residual Value}}{\text{Estimated Service Life}}$.

Accelerated Depreciation Methods

Depreciation methods that recognize higher depreciation expense in the earlier years of an asset's life and lower depreciation expense in later years.

Double-Declining-Balance (DDB) Method

An accelerated depreciation method that multiplies an asset's beginning-of-year book value by a rate equal to twice (200%) the straight-line rate.

Sum-of-the-Years'-Digits (SYD) Method

An accelerated depreciation method that multiplies the depreciable base by a declining fraction, where the denominator is the sum of the digits of the service life years calculated as $\frac{n(n+1)}{2}$.

Units-of-Production Method

An activity-based depreciation method that computes a depreciation rate per measure of output or input and multiplies this rate by actual activity to determine periodic depreciation.

Half-Year Convention

A convention where one-half of a full year's depreciation is recorded in the year of asset acquisition and the remaining half in the year of disposal.

Group Depreciation Method

A collective depreciation method applied to a group of depreciable assets that share similar service lives and characteristics.

Composite Depreciation Method

A collective depreciation method applied to a collection of physically dissimilar assets aggregated for convenience.

Assets Held for Sale

Assets that management has committed to sell in their present condition, reported at the lower of book value or fair value less cost to sell, and not subject to depreciation or amortization.

Technological Feasibility

The point in a software development project after which software development costs must be capitalized rather than expensed as research and development.

Percentage-of-Revenue Method

An amortization method for capitalized software development costs based on the ratio of current period revenues to total current and anticipated revenues.

Recoverability Test

Step 1 of the US GAAP impairment test for PP&E and finite-life intangibles, where an asset is considered impaired if the undiscounted sum of estimated future cash flows is less than its book value.

Impairment Loss

An accounting loss recorded when the book value of an asset exceeds its fair value (under US GAAP) or its recoverable amount (under IFRS).

Reporting Unit

An operating segment or component of an operating segment for which discrete financial information is available, used as the level for testing goodwill impairment under US GAAP.

Cash-Generating Unit (CGU)

The lowest level at which goodwill is monitored by management under IFRS for impairment testing.

Capitalization

The process of recording an expenditure as an asset because it provides benefits beyond the current fiscal year.

Repairs and Maintenance

Expenditures made to maintain a given level of benefits provided by an asset, which are expensed in the period incurred.

Additions

Expenditures made to add a new major component to an existing asset, which are capitalized and depreciated.

Improvements

Expenditures involving the replacement of a major asset component with a new component that increases future benefits, which are capitalized and depreciated.

Rearrangements

Expenditures made to restructure or relocate an asset without addition, replacement, or improvement to create a new capability, which are capitalized.

Biological Assets

Living animals and plants, valued under IFRS at fair value less estimated costs to sell and under US GAAP at cost less accumulated depreciation or depletion.

Modified Accelerated Cost Recovery System (MACRS)

The tax depreciation system in the US tax code that applies fixed percentage rates to an asset's original cost based on specified recovery periods without using estimated useful lives or residual values.