Chapter 9: Plant Assets, Natural Resources, and Intangible Assets

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Financial Accounting, Seventh Edition Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso

Accelerated-depreciation method

Depreciation method that produces higher depreciation expense in the early years than in the later years.

Additions and improvements

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

Amortization

The allocation of the cost of an intangible asset to expense over its useful life in a systematic and rational manner.

Asset turnover ratio

A measure of how efficiently a company uses its assets to generate sales; calculated as net sales divided by average total assets.

Capital expenditures

Expenditures that increase the company's investment in productive facilities.

Copyright

Exclusive grant from the federal government that allows the owner to reproduce and sell an artistic or published work.

Declining-balance method

Depreciation method that applies a constant rate to the declining book value of the asset and produces a decreasing annual depreciation expense over the useful life of the asset.

Depletion

The allocation of the cost of a natural resource to expense in a rational and systematic manner over the resource's useful life.

Depreciation

The process of allocating to expense the cost of a plant asset over its useful (service) life in a rational and systematic manner.

Depreciable cost

The cost of a plant asset less its salvage value.

Franchise (license)

A contractual arrangement under which the franchisor grants the franchisee the right to sell certain products, provide specific services, or use certain trademarks or trade names, usually within a designated geographical area.

Going-concern assumption

States that the company will continue in operation for the foreseeable future.

Goodwill

The value of all favorable attributes that relate to a business enterprise.

Intangible assets

Rights, privileges, and competitive advantages that result from the ownership of long-lived assets that do not possess physical substance.

Licenses

Operating rights to use public property, granted to a business enterprise by a governmental agency.

Materiality principle

If an item would not make a difference in decision making, a company does not have to follow GAAP in reporting it.

Natural resources

Assets that consist of standing timber and underground deposits of oil, gas, or minerals.

Ordinary repairs

Expenditures to maintain the operating efficiency and productive life of the unit.

Patent

An exclusive right issued by the U.S. Patent Office that enables the recipient to manufacture, sell, or otherwise control an invention for a period of 20 years from the date of the grant.

Plant assets

Tangible resources that are used in the operations of the business and are not intended for sale to customers.

Research and development (R&D) costs

Expenditures that may lead to patents, copyrights, new processes, or new products.

Revenue expenditures

Expenditures that are immediately charged against revenues as an expense.

Salvage value

An estimate of an asset's value at the end of its useful life.

Straight-line method

Depreciation method in which periodic depreciation is the same for each year of the asset's useful life.

Trademark (trade name)

A word, phrase, jingle, or symbol that identifies a particular enterprise or product.

Units-of-activity method

Depreciation method in which useful life is expressed in terms of the total units of production or use expected from an asset.

Useful life

An estimate of the expected productive life, also called service life, of an asset.

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