Ordinary & necessary costs
those that will be capitalized as the cost of an asset
another term for an expense
another term for an asset
when assets in an exchange will produce different future cash flows
straight line depreciation
most common method- cost minus salvage value divided by life in years
units of production method
cost minus salvage value divided by life in units. annual depreciation is units each year times rate per unit
Double declining balance method
accelerated method- 2 divided by life to get rate, declining balance is book value- salvage value is disregarded in calculation except cannot depreciate beyond that limit
Book value of an asset
cost minus accumulated depreciation
spreading cost of asset over useful life- used for intangibles except goodwill
spreading cost of natural resources - method is units of production- cost divided by expected production- not recorded as expense until resource is sold
unidentifiable asset- only recorded when buy another company- excess of purchase price over fair value of identifiable net assets
exclusive right to a product or process
exclusive right to written material, music, etc.
intangible asset- amount paid for right to use company such as MCDonalds products, etc.
impairment of an asset
permanent decrease in value of an asset, such as goodwill- when it occurs, expense should be recognized
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