ACCT 2010 Chapter 7: Long-Lived Assets and Depreciation

Flashcards reviewing key concepts related to long-lived assets, their expenses, and depreciation methods from ACCT 2010 Chapter 7.

Cost of Plant Assets

The sum of all costs incurred to bring an asset to its intended use, including purchase price, taxes, and other associated costs.

Lump-Sum Purchase

The acquisition of several assets purchased in a group at one price, where the total cost is allocated based on market values.

Capital Expenditure

An expense that increases an asset’s capacity or extends its useful life, capitalized rather than expensed immediately.

Depreciation

The process of allocating a plant asset’s cost to expense over its useful life, corresponding with the revenue it generates.

Straight-Line Method

A method of calculating depreciation that results in an equal amount of expense each year, based on depreciable cost and useful life.

Double-Declining-Balance Method

A depreciation method that calculates depreciation based on the asset's full cost in the first year and uses a 'plug' amount in the final year to achieve residual value.

Change in Estimate

An adjustment made to the useful life or residual value of a depreciable asset after it is in use, accounted for in the period of change.

Rate of Return on Assets (ROA)

A financial ratio calculated by dividing net income by average total assets, measuring how profitably management uses the company's assets.

DuPont Analysis

A method that breaks down return on assets into net profit margin and total asset turnover to provide a detailed view of profitability and asset efficiency.

Gain on Sale of Asset

The financial outcome when cash received from selling a plant asset exceeds its book value.

Loss on Sale of Asset

The financial outcome when cash received from selling a plant asset is less than its book value.