Chapter 8: Long Term Assets - P,P&E

VOCAB

Acquisition cost

The net cash equivalent amount paid or to be paid for an asset.

Amortization

The systematic and rational allocation of the acquisition cost of an intangible asset over its useful life.

Capitalized interest

Interest expenditures included in the cost of a self-constructed asset.

Declining-balance depreciation

Method that allocates the net book value (cost minus accumulated depreciation) of an asset over its useful life based on a multiple of the straight-line rate, thus assigning more depreciation to early years and less depreciation to later years of an asset's life.

Depletion

Systematic and rational allocation of the cost of a natural resource over the period of its exploitation.

Depreciable cost

Cost minus residual value; the amount to be allocated over an asset's useful life.

Depreciation

The process of allocating the cost of buildings and equipment (but not land) over their productive lives using a systematic and rational method.

Estimated residual (or salvage) value

The estimated amount to be recovered by the company, less disposal costs, at the end of an asset's estimated useful life.

Estimated useful life

The expected service life of an asset to the present owner.

Franchise

A contractual right to sell certain products or services, use certain trademarks, or perform activities in a geographical region.

Goodwill (Cost in Excess of Net Assets Acquired)

For accounting purposes, the excess of the purchase price of an acquired business over the fair value of the acquired business's assets and liabilities.

Improvements

Expenditures that increase the productive life, operating efficiency, or capacity of an asset; recorded as increases in asset accounts, not as expenses.

Intangible assets

Assets that have special rights but not physical substance.

Licenses and operating rights

Obtained through agreements with governmental units or agencies that permit owners to use public property in performing their services.

Natural resources

Assets occurring in nature, such as mineral deposits, timber tracts, oil, and gas.

Net book value (carrying value or book value)

The acquisition cost of an asset less its accumulated depreciation, amortization (for intangible assets), or depletion (for natural resources).

Ordinary repairs and maintenance

Expenditures that maintain the productive capacity of an asset during the current accounting period only; recorded as expenses for the period.

Patent

Granted by the federal government for an invention; gives the owner the exclusive right to use, manufacture, and sell the subject of the patent.

Straight-line depreciation

Method that allocates the depreciable cost of an asset in equal periodic amounts over its useful life.

Tangible assets

Assets that have physical substance.

Technology

Includes costs capitalized for computer software and website development.

Trademark

An exclusive legal right to use a special name, image, or slogan.

Units-of-production depreciation

Method that allocates the depreciable cost of an asset over its useful life based on the relationship of its periodic output or activity level to its total estimated output or activity level.