Chapter 9 Accounting

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accelerated depreciation

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methods or depreciation that call for recognition of relatively large amounts of depreciation in the early years of an asset's useful life and relatively small amounts in the later years

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amortization

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the systematic write-off to expense of the cost of an intangible asset over the periods of its economic usefulness

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book value

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the cost of a plant asset minus the total recorded depreciation, as shown by the Accumulated Depreciation account. The remaining un depreciated cost is aka carrying value

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capital expenditures

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costs incurred to acquire a long-lived asset. expenditures that will benefit several accountin periods

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capitalize

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a verb w/ 2 different meanings in accounting. the first is to debit an expenditure to an asset account, rather than directly to expense. the second is to estimate the value of an investment by dividing the annual return by the investor's required rate of return

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depletion

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allocating the cost of a natural resource to the unite removed as the resource is mined, pumped, cut, or otherwise consumed

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deprectiation

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the systematic allocation of the cost of an asset to expense over the years of its estimated useful life.

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fixed-percentate-of-declining balance depreciation

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an accelerated method of depreciation in which the rate is a multiple of the straith-line rate and is applied each year to the undepreciated cost of the asset. the most commonly used rate is double the straigh-line rate

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goodwill

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the presetn value of expected future earnings of a business in excess of the earnings normally realized in the industry. recorded when a business entity is purchased at a price in excess of the fair value of its net identifiable assets less liabilities

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half-year convention

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the practice of takingsix month's depreciation in the year of acquisition and in the year of disposition, rather than computing depreciation for partial periods to the newarest month. this method is widely used and is acceptable for both income tax reporting and financial reports, as long as it is applied to all assets of a particular type acquired during the year. the half-year convention generally is not used for buildings

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impairement loss

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writing down a long-lived asset for the difference between its carrying amount less its fair value

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intangible assets

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thoese assets that are used in operation of a business but that have no physical substance and are noncurrent

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MACRS

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the Modified Accelerated Cost Recovery System. The accelerated depreciation method permitted in federal income tax returns for assets acquired after December 31, 1986. Depreciation is based on prescribed recovery periods and depreciation rates

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natural resources

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mines, oil fields, standing timer, and similar assets that are physically consumed and converted into inventory

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net identifiable assets

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the total of all assets minus liabilities

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noncash charge or expense

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a charge against earnings - either an expense or a los - that does not require a cash expenditure at or near the time of recognition. thus, the charge reducs net income but does not affect cash flows (except, perhaps, for income tax payments.) Examples are depreciation and the write-off of asset values because an asset has become impaired

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plant assets

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long-lived assets that are acquired for use in vusiness operations rather than for resale to customers

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present value

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the amount that a knowledgable investor would pay today for the right to receive future cash flows. the present value is always less than the sum of the future cash flows because the investor requires a return on the investment

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residual (salvage) value

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the portion of an asset's cost expected to be recovered through sale or trade-in of the asset at the end of its useful life

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revenue expenditures

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expenditures that will benefit only the current accounting period

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straight-line depreciation

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a method of depreciation that lalocates the cost of an asset (minus any residual value) equally to each year of its useful life

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sum-of-the-years' digits (SYD) depreciation

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a long-established but seldom-used method of accelerated depreciation. usually produces results that lie in between the 200 percent and 150 percent declinging balance methods

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tangible plant assets

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plant assets that have physical substance but that are not natuarl resources. examples include land, buildings, and all types of equipment

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units-of-output

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a depreciation method in which cost (minus residual value) is divided by the estimated unites of lifetime output. the unit depreciation cost is multiplied by the actual units of output each year to compute the annual depreciation expense