Accounting Chapter 9

Long-Lived Assets

Tangible and intangible resources owned by a business and used in its operations over several years.

Tangible assets

Assets that have physical substance, meaning you can see, kick, or touch them. Examples include land, buildings, machinery, vehicles, office equipment, and furniture/fixtures.

Intangible assets

Assets that have special rights but no physical substance. Examples include brand names, trademarks, and licensing rights

Capitalize

To record a cost as an asset, rather than an expense.

Ordinary Repairs and Maintenance

Expenditures for the normal operating upkeep of long-lived assets, recorded as expenses. Usually reoccurring, do not increase an assets usefulness

Extraordinary Repairs

Infrequent expenditures that increase an asset’s economic usefulness in the future and that are capitalized.

Depreciation

Process of allocating the cost of buildings, equipment, and other similar long-lived “productive” assets over their productive lives using a systematic and rational method of allocation.

Book Value

The acquisition cost of an asset less accumulated depreciation

Useful Life

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

Residual (or Salvage) Value

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

Depreciable Cost

The portion of the asset’s cost that will be used up during its life. It is calculated as asset cost minus residual value and allocated to depreciation expense throughout the asset’s life.

Straight-Line Depreciation Method

Allocates the depreciable cost of an asset in equal periodic amounts over its useful life.

Units-of-Production Depreciation Method

Allocates the depreciable cost of an asset over its useful life based on its output during the period in relation to its total estimated output.

Declining-Balance Depreciation Method

Allocates the cost of an asset over its useful life based on a multiple of (often two times) the straight-line rate.

Amortization

For intangible assets, this is the systematic and rational allocation of the cost of an intangible asset over its useful life.