Chapter 13

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

__**_ ___** 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