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19 Cards in this Set

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What are Long-lived Assets?
Noncurrent assets, which a business retains beyond one year, not for sale, but for use in the course of normal operations. Long-lived assets include land in use, plant and equipment, natural resources, and certain intangibles such as a patent used in operating the business.
What is the fixed asset turnover ratio?
It measures how efficiently a company utilizes its investment in property, plan, and equipment over time. Net Sales/[(Beginning net fixed asset balance + Ending net fixed asset balance)/2]
What are Tangible long-lived assets?
Assets that have physical substance and are long-lived (beyond one year). They are acquired for use in the operation of a business and are not intended for resale. They are broken into three types: Land, Plant and equipment, and natural resources.
How is the acquisition of a long lived asset recorded?
In accordance with the cost principle the cost of a long-lived asset is the cash equivalent price paid for it plus all incidental costs expended to obtain it and to place it in the location in qhich it is to be used. Under the matching principle, the acquisition cost of the asset must be allocated to the periods in which it is used to earn revenue. In this way the cost of the asset is matched, as expense, with the revenues as they are earned from period to period through the use of the asset.
What are Capital Expenditures?
Expenditures of resources(assets given up or debt incurred) for a service or asset that will help earn revenue for periods beyond the current accounting period. Capital expenditures should be debited to appropriate asset accounts and then allocated to those future periods in which revenues will be earned and against which the expenditures will be matched.
What are Revenue Expenditures?
Expenditures that help earn revenue only for the current period. Revenue expenditures are debited to appropriate expense accounts in the period in which incurred.
What are Ordinary Repairs?
Expenditures for the normal maintenance and upkeep of machinery and other tangible long-lived assets that are necessary to keep the assets in their usual operating conditions. Generally, Ordinary reparis are recurring in nature, involve relatively small amounts at each occurrence and do not extend the useful estimated life of the asset. Ordinary repairs are debited to expense in the period in which incurred.
What are Improvements?
Unusual, nonrecurring, major renovations that are necessary because of unusual conditions. Genearlly, they are large in amount, not recurring, and tend to either make the asset more efficient or to extend its useful life. Extraordinary repairs are debited to the appropriate asset accounts (or alternatively to the accumulated depreciation accounts) and in that way affect the amount of depreciation expense for the remaining estimated life of the asset.
What is Depreciation?
Depreciation is allocation of the cost of a tangible long-lived asset like plant and equipment, buildings, and furniture over its useful life.
What is Depletion?
Allocation of the cost of a natural resource over its useful life. It is identival in concept to depreciation except that it relates to a different kind of asset, depletable natural resources.
What is Amortization?
Allocation of the cost of an intangible asset over its estimated useful life. Conceptually, it is the same as depreciation and depletion except it relates to an intangible asset.
What are the 3 values that must be known to compute depreciation?
Cost, Estimated Useful Life, Residual Value.
Explain the Straight-line method of depreciation?
An equal amount of depreciation expense to be apportioned to, or matched with, the revenues of each period. It is especially appropriate for tangible long-lived assets that are used at an approximately uniform level from period to period.
Explain the Unit-of-production method of depreciation?
Depreciation varies in amount with the rate at which the asset is used productively each yaer. This method is appropriate for those assets that tend to earn revenue with use rather than with the passage of time. Thus, it normally would apply to assets that are not used at a uniform rate from period to period.
What is Asset Impairment?
When events or changes in circumstances cause the book value of long-lived assets to be higher than their related estimated future cash flows. it is accounted for by writing down the asset to the asset's fair value and recording a loss.
How do you account for the sale of equipment?
The Equipment account is credited for the asset's historical cost. Its related Accumulated Depreciation account is debited for the amount representing prior usage. The Cash account is debited for the sales price. if the cash received exceeds the cost less accumulated depreciation(net book value), a Gain on Sale of Equipment is recorded for the difference. If the cash received is lower than the net book value, a Loss on Sale of Equipment is recorded for the difference.
What are Intangible long-lived assets?
Assets held by a business because of the special valuable rights that they confer; they have no physical substance. Examples are patents, compyrights, franchises, licenses, trademarks and goodwill. Intangible assets with definite lives are subject to amortization.
Explain the Double-declining-balance method of depreciation?
A form of accelerated depreciation, causing a higher amount of depreciation expense to be matched with revenue in early periods of the estimated useful life of the asset. The double declining balance method is particularly appropriate when the long-lived assets perform more efficiently and therefore produce more revenue in the early years of their useful life than in the later years.
How should an addition to an existing long-live asset be depreciated?
Over the shorter of the estimated life of the addition or the remaining life of the existing asset to which it relates. This rule is ncessary because an addition to an existing long-lived asset has no use after the useful life of the existing asset has expired.