Ch 9 flashcards

Plant Assets

Resources that have physical substance, used in operations of the business, and are not intended for sale to customers.

Historical Cost Principle

Requires that companies record plant assets at cost.

Land Improvements

Structural additions made to land that include expenditures necessary to make the improvements ready for intended use.

Depreciation

The process of allocating the cost of a plant asset over its useful life in a rational and systematic manner.

Revenue Expenditures

Ordinary repairs or maintenance incurred to maintain the operating efficiency and productive life of an asset.

Capital Expenditures

Costs incurred to increase the operating efficiency, productive capacity, or useful life of a plant asset.

Amortization

The process of allocating the cost of an intangible asset over its useful life.

Goodwill

The value of all favorable attributes that relate to a company not attributable to specific assets.

Intangible Assets

Rights, privileges, and competitive advantages without physical substance that arise from ownership of long-lived assets.

Return on Assets (ROA)

A measure of profitability that indicates how much net income is generated by each dollar of assets.

Asset Turnover

A measure of how effectively a company is generating sales from its assets.

Loss on Disposal

Occurs when the proceeds from the sale of an asset are less than its book value.

Gain on Sale

Occurs when the proceeds from the sale of an asset exceed its book value.

Double-Declining Balance Method

An accelerated depreciation method that applies a constant rate to a declining book value.

Units-of-Activity Method

Depreciation method that expresses useful life in terms of total units of production or use expected from the asset.

Capitalization

The practice of treating certain expenditures as an asset on the balance sheet rather than an expense.

Book Value

The value of an asset as recorded on the balance sheet, calculated as cost minus accumulated depreciation.

Materiality

The principle stating that if an item does not have a significant impact on decision-making, it does not need to follow GAAP.

Disposal of Plant Assets

The process of retiring, selling, or exchanging plant assets, requiring accounting for gains or losses.

Impairment

A permanent decline in the fair value of an asset, requiring immediate loss recognition in accounting.