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Financial Accounting Chapter 7

Terms in this set (19)

Accelerated Depreciation Method
A depreciation method that writes off a large amount of the asset's cost nearer the start of its useful life than the straight-line method does.
Amortization
The systematic reduction of a lump-sum amount. Expense that applies to intangible assets in the same way depreciation applies to plant assets and depletion applies to natural resources
Capital Expenditure
Expenditure that increases an asset's capacity or efficiency or extends its useful life. Capital expenditures are debited to an asset account.
Copyright
Exclusive right to reproduce and sell a book, musical composition, film, other work of art, or computer program. Issued by the federal government, copyrights extended 70 years beyond the author's life.
Depletion Expense
that portion of a natural resource's cost that is used up in a particular period. Depletion expense is computed in the same way as units-of-production depreciation.
Depreciable Cost
The cost of a plant asset minus its estimated residual value.
Double-Declining-Balance (DDB) Method
An accelerated depreciation method that computes annual depreciation by multiplying the asset's decreasing book value by a constant percentage, which is two times the straight-line rate.
Estimated Residual Value
Expected cash value of an asset at the end of its useful life. Also called residual value, scrap value, or salvage value.
Estimated Useful Life
Length of service that a business expects to get from an asset. May be expressed in years, units of output, miles, or other measures.
Franchises and Licenses
Privileges granted by a private business or a government to sell a product or service in accordance with specified conditions.
Goodwill
Excess of the cost of an acquired company over the sum of the market values of its net assets (assets minus liabilities).
Impairment
The condition that exists when the carrying amount of a long-lived asset exceeds its fair value. Whenever long-term assets have been impaired, they have to be written down to fair market values. Under U.S. GAAP, once impaired, the carrying value of a long-lived asset may never again be increased. Under IFRS, if the fair value of impaired assets recovers in the future, the values may be increased.
Intangible Assets
An asset with no physical form, a special right to current and expected future benefits.
Modified Accelerated Cost Recovery System (MACRS)
A special depreciation method used only for income-tax purposes. Assets are grouped into classes, and for a given class depreciation is computed by the doubling-declining-balance method, the 150%-declining balance method, or, for most real estate, the straight-line method.
Patent
A federal government grant giving the holder the exclusive right for 20 years to produce and sell an invention.
Plant Assets
Long-lived assets, such as land, buildings, and equipment, used in the operation of the business. Also called fixed assets.
Straight-Line (SL) Method
Depreciation method in which an equal amount of depreciation expense is assigned to each year of asset use.
Trademark, Trade Name
A distinctive identification of a product or service. Also called a brand name.
Units-of-Production (UOP) Method
Depreciation method by which a fixed amount of depreciation is assigned to each unit of output produced by the plant asset.
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