Chapter 13

**__**__**___ _____**__ have a physical presence; they can be seen and touched.

Tangible assets

\
______ _______ are rights or privileges. They cannot be seen or touched.

Intangible assets

\: Sometimes called plant assets or fixed assets. We depreciate these assets over their useful life.

Property, Plant, and Equipment

\: Land is considered a component of Property, Plant, and Equipment. It has an infinite life, and as such, land is not subject to depreciation.

Land

\: Mineral deposits, oil and gas reserves, timber stands, coal mines, and stone quarries are some examples of natural resources. We deplete these assets over their useful life.

Natural Resources

\: patents and copyrights. Amortize the cost of each over its useful life.

Intangible Assets with Identifiable Useful Lives

\: renewable franchises, trademarks, and goodwill. The cost of these assets is not expensed unless it can be shown that there has been an impairment in value.

**Intangible Assets with** ***Indefinite*** **Useful Lives**

Buildings

* Purchase price


* Sales taxes
* Title search and transfer document costs
* Realtor’s and attorney’s fees
* Remodeling costs

**Equipment** 

* Purchase price (less discounts)


* Sales taxes
* Delivery costs
* Installation costs
* Costs to adapt for intended use

Land

* Purchase price


* Sales taxes
* Title search and transfer document costs
* Realtor’s and attorney’s fees
* Costs of removal of old buildings
* Grading costs

The life cycle of operational assets has four phases in a continuous loop that are used to account for and define the operational asset throughout its lifetime. These functions, in order, are:

1. Acquiring funding
2. Buying the asset
3. Using the asset
4. Retiring the asset

Depreciation refers to the **_____** __of the cost of a fixed asset (PP&E) to__ ____**_** over the years the organization expects to use it ***(expense deferral)***

Allocation; Expense

***______*** is a generic term referring to the spreading out of a cost over a period of time

Ammortization

The __**____ _____**__ of accounting requires that firms use depreciation and amortization

matching principal

As a long-term asset is **__**__, we allocate a portion of the original cost as an__ ____**_** in each year

Used; expense

This graph demonstrates what happens under the __**________**__ method

Straight-line

Assets are depreciated based on their **_____**

cost

*Asset valuation for depreciation:*

*Includes costs incurred to put the asset* ***____ ___***

into use

*Ordinary repairs and maintenance are* ***________***

Expensed

*Extraordinary repairs, replacements, additions, and improvements are* ***________***

capitalized

*Expensed means the costs are charged to the __*__*__ _____*__ *in the period they are incurred*

income statement

Capitalized means they are added to the value of the asst and depreciated over the asset’s __*____ ____*__

remaining life

*Depreciable Base*

*This is the full amount that will be depreciated* ***_***__*___ ___ ___*__*of the asset* 

Cost - Salvage Value

over the life

*Accumulated Depreciation*

*The total amount of depreciation taken on an asset* __***__ __***__

*Shown on the balance sheet, reduces* ***_*__*__ ____*__**

to date; Net PPE

*Depreciation Expense*

* *The depreciation taken in the* __***____ ___***__
* *Shown on the income statement, reduces* ***_*__*__ ____*__**

*current period; net income*

\: The same amount is depreciated each accounting period.

**Straight-line method**:

\: Produces more depreciation expense in the early years of an asset’s life, with a declining amount of expense in later years.

Double-declining-balance

\: Produces varying amounts of depreciation in different accounting periods depending upon the number of units produced.

Units-of-production

There are many depreciation methods, and some are more **____** than the straight-line method (accelerated)

aggressive

Similar to the various inventory costing methods (*FIFO/LIFO; we’ll discuss later*), different methods can produce ____ _____acct numbers!

Significantly different