9. Reporting and Analyzing Long-Lived Assets
amortizable amount: The cost of a finite-life intangible asset (for example, patent, copyright) less its residual value, if any.
amortization: The systematic allocation of the amortizable cost of a finite-life intangible asset over the shorter of the asset’s legal or useful life.
asset retirement costs: The amount added to the cost of a long-lived asset that relates to obligations to dismantle, remove, or restore an asset when it is retired.
asset turnover: A measure of how efficiently a company uses its total assets to generate sales. It is calculated by dividing sales by average total assets [(beginning + ending total assets) ÷ 2].
capital expenditures: Expenditures that benefit future periods. They are recorded (capitalized) as long-lived assets
capital lease: A long-term agreement allowing one party (the lessee) to use an asset belonging to another party (the lessor). The arrangement is accounted for as a purchase because the risks and rewards of owning the asset have been transferred to the lessee.
copyright: An exclusive right granted by the federal government allowing the owner to reproduce and sell an artistic or published work for a period extending over the life of the creator plus 50 years.
cost model: A model for accounting for an asset that carries the asset at its cost less any accumulated depreciation or amortization. This model should not be confused with the cost model that is used when accounting for investments.
depletion: The depreciation of natural resources.
depreciable amount: The cost of a depreciable asset (for example, property, plant, and equipment) less its residual value.
development costs: Expenditures related to the application of research to a plan or design for a new or improved product or process for commercial use. These costs are recorded (capitalized) as long-lived assets.
diminishing-balance method: A depreciation method in which depreciation expense is calculated by multiplying the carrying amount of an asset by a depreciation rate (the straight-line rate, which is 100% divided by the useful life, adjusted for any multiplier effect). This method produces a decreasing periodic depreciation expense over the asset’s useful life.
franchise: A contractual arrangement under which the franchisor grants the franchisee the right to sell certain products, to render specific services, or to use certain trademarks or trade names, usually within a designated geographic area.
impairment loss: The amount by which the carrying amount of an asset exceeds its fair value (assumed to be its recoverable amount).
licences: Operating right to use an asset that is granted by a government agency or other organization.
operating expenditures: Expenditures that benefit only the current period. They are immediately charged against revenues as an expense.
operating lease: An arrangement allowing one party (the lessee) to use an asset belonging to another party (the lessor). The arrangement is accounted for as a rental because the risks and rewards of owning the asset have been retained by the lessor.
patent: An exclusive right issued by the federal government that enables the recipient to manufacture, sell, or otherwise control an invention for a period of 20 years from the date of the application.
research expenses: Expenditures on an original planned investigation that is done to gain new knowledge and understanding. These costs are expensed because the criteria for recording them as assets have not been met.
residual value: An estimate of the amount that a company would obtain from the disposal of an asset at the end of its useful life.
return on assets: A profitability measure that indicates the amount of net income generated by each dollar invested in assets. It is calculated as net income divided by average total assets [(beginning + ending total assets) ÷ 2]. It can also be calculated by multiplying profit margin by asset turnover.
revaluation model: A model of accounting for a long-lived asset that carries the asset at its fair value less accumulated depreciation or amortization.
right-of-use asset: A leased asset recorded as property, plant, and equipment because the right to use the asset has been obtained by the lessee, usually because the lease extends beyond one year.
straight-line method: A depreciation method in which depreciation expense is calculated by dividing the depreciable amount of a long-lived asset, such as buildings or equipment, by its useful life.
trademark (trade name): A word, phrase, jingle, or symbol that distinguishes or identifies a particular business or product.
units-of-production method: A depreciation method in which the useful life is expressed in terms of the total units of production or total use expected from the asset. Depreciation expense is calculated by multiplying the units produced by a depreciation rate per unit. This rate is determined by dividing the depreciable amount of the asset by the estimated total units of activity. The method will produce an expense that will vary each period depending on the amount of activity.
9. Reporting and Analyzing Long-Lived Assets
amortizable amount: The cost of a finite-life intangible asset (for example, patent, copyright) less its residual value, if any.
amortization: The systematic allocation of the amortizable cost of a finite-life intangible asset over the shorter of the asset’s legal or useful life.
asset retirement costs: The amount added to the cost of a long-lived asset that relates to obligations to dismantle, remove, or restore an asset when it is retired.
asset turnover: A measure of how efficiently a company uses its total assets to generate sales. It is calculated by dividing sales by average total assets [(beginning + ending total assets) ÷ 2].
capital expenditures: Expenditures that benefit future periods. They are recorded (capitalized) as long-lived assets
capital lease: A long-term agreement allowing one party (the lessee) to use an asset belonging to another party (the lessor). The arrangement is accounted for as a purchase because the risks and rewards of owning the asset have been transferred to the lessee.
copyright: An exclusive right granted by the federal government allowing the owner to reproduce and sell an artistic or published work for a period extending over the life of the creator plus 50 years.
cost model: A model for accounting for an asset that carries the asset at its cost less any accumulated depreciation or amortization. This model should not be confused with the cost model that is used when accounting for investments.
depletion: The depreciation of natural resources.
depreciable amount: The cost of a depreciable asset (for example, property, plant, and equipment) less its residual value.
development costs: Expenditures related to the application of research to a plan or design for a new or improved product or process for commercial use. These costs are recorded (capitalized) as long-lived assets.
diminishing-balance method: A depreciation method in which depreciation expense is calculated by multiplying the carrying amount of an asset by a depreciation rate (the straight-line rate, which is 100% divided by the useful life, adjusted for any multiplier effect). This method produces a decreasing periodic depreciation expense over the asset’s useful life.
franchise: A contractual arrangement under which the franchisor grants the franchisee the right to sell certain products, to render specific services, or to use certain trademarks or trade names, usually within a designated geographic area.
impairment loss: The amount by which the carrying amount of an asset exceeds its fair value (assumed to be its recoverable amount).
licences: Operating right to use an asset that is granted by a government agency or other organization.
operating expenditures: Expenditures that benefit only the current period. They are immediately charged against revenues as an expense.
operating lease: An arrangement allowing one party (the lessee) to use an asset belonging to another party (the lessor). The arrangement is accounted for as a rental because the risks and rewards of owning the asset have been retained by the lessor.
patent: An exclusive right issued by the federal government that enables the recipient to manufacture, sell, or otherwise control an invention for a period of 20 years from the date of the application.
research expenses: Expenditures on an original planned investigation that is done to gain new knowledge and understanding. These costs are expensed because the criteria for recording them as assets have not been met.
residual value: An estimate of the amount that a company would obtain from the disposal of an asset at the end of its useful life.
return on assets: A profitability measure that indicates the amount of net income generated by each dollar invested in assets. It is calculated as net income divided by average total assets [(beginning + ending total assets) ÷ 2]. It can also be calculated by multiplying profit margin by asset turnover.
revaluation model: A model of accounting for a long-lived asset that carries the asset at its fair value less accumulated depreciation or amortization.
right-of-use asset: A leased asset recorded as property, plant, and equipment because the right to use the asset has been obtained by the lessee, usually because the lease extends beyond one year.
straight-line method: A depreciation method in which depreciation expense is calculated by dividing the depreciable amount of a long-lived asset, such as buildings or equipment, by its useful life.
trademark (trade name): A word, phrase, jingle, or symbol that distinguishes or identifies a particular business or product.
units-of-production method: A depreciation method in which the useful life is expressed in terms of the total units of production or total use expected from the asset. Depreciation expense is calculated by multiplying the units produced by a depreciation rate per unit. This rate is determined by dividing the depreciable amount of the asset by the estimated total units of activity. The method will produce an expense that will vary each period depending on the amount of activity.
