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50 Cards in this Set
- Front
- Back
What are plant assets?
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Long-lived assets such as land, buildings, and equipment. Also called fixed asset. Besides land they all depreciate.
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What are intangible assets?
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An asset with no physical form, a special right to current and expected future benefits
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How to determine the cost of an asset?
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The cost of any asset is the sum of all the costs incurred to bring the asset to its intended use.
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What is not included in the cost of land?
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All land improvements such as paving and fencing.
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What is amortization?
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The depreciation on leasehold improvements
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What is the relative-sales-value method?
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The technique when the total cost is divided among the same assets according to their relative market value
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What is a capital expenditure?
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Expenditures that increase the asset's capacity or extend its useful life
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What are expenses for an asset?
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Costs that do not extend the asset's capacity or its useful life, but merely maintain the asset or restore it to working order.
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What is depreciation?
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A process in which we allocate a plant asset's cost to expense over its life.
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What is the estimated useful life?
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The length of service expected from using the asset
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What is estimated residual value?
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The expected cash value of an asset at the end of its useful life
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How is the depreciated cost measured?
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Depreciated cost= asset's cost - estimated residual value.
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What is the straight-line method?
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Depreciation method in which an equal amount of depreciation expense is assigned to each year of asset use.
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How to calculate the cost in straight-line?
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The cost minus the residual value divided by the useful life
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What is the units-of-production method?
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Method where a fixed amount of depreciation is assigned to each unit of output produced by the asset
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How to calculate expense in units-of-production method?
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Cost minus the residual value divided by the useful life in units of prodction
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How is the accelerated method different?
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It is different because it writes off a larger amount in the beginning
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What is the double-declining-balance method?
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Computes annual depreciation by multiplying the asset's declining book value by a constant percentage, which is 2 times the straight-line rate
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What is the first step in DDB?
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Compute the straight-line depreciation rate per year
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What is the second step in DDB?
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Multiply the straight-line depreciation rate times two
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What is the third step in DDB?
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Multiply the DDB rate by the period's beginning asset book value, ignore the residual value.
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What is the fourth step in DDB?
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Determine the final year's depreciation amount. The amount needed to reduce asset book value to its residual value
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What are the differences in DDB from the other methods?
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First the residual value is ignore the first year. Second the final year is the "plug" amount needed.
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What is straight-line method mostly used for?
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For assets that generate revenue evenly through time.
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What is the unit-of-production method mostly used for?
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For assets that wear out because of physical use rather than obsolescence.
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What is the DDB method mostly used for?
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For assets that generate more revenue earlier in their useful lives and less in later years
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How is DDB helpful for tax purposes?
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It provides the fastest deductions, thus decreasing immediate tax payments.
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What is the Modified Accelerated Cost Recovery System(MACRS)?
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In this method the assets are grouped into classes, and for a given class depreciation is computed by the DDB, the 150%DDB, and the straight-line method.
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For what group is the DDB method used?
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It is used for the four classes.
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For what group is the 150%DDB method used?
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For 15-year and 20-year assets
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For what group is the straight-line method used?
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For most real estate
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How to compute partial year depreciation?
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First compute the full year depreciation, then multiply it by the fraction of the year.
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What is the rule of thumb for partial year depreciation?
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Businesses do not record monthly depreciation for assets purchased after the 15th of the month and record full month depreciation for assets purchased on or before the 15th
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How to change the useful life of a depreciable asset?
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Use the current book value and divide it by the new estimated useful life remaining.
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What is a fully depreciated asset?
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It is an asset that has reached the end of its estimated useful life.
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What happens to fully depreciated assets?
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They may still be used but they do not accumulate more depreciation.
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What happens when disposing of an asset?
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The accumulated depreciation must match the cost of the asset.
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What happens when the asset is disposed before fully depreciated?
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The company must incur and record a loss and the remaining of the depreciation
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What happens when the assets is sold?
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If there is a gain or a loss they must be recorded. To determine if there was a gain or loss the price must be matched to the current book value
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What happens when assets are exchanged?
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The business simply transfers the book value of the old asset plus any cash payment into the new asset account
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What is a depletion expense?
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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.
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What is amortization?
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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.
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How does amortization work?
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It is calculated in straight-line bases, it doesn't have to be accumulated, and most intangibles do not have residual values.
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How does the amortization for patents works?
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Amortization for patents is recorded as an expense and reduces the value of the patent.
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How does the amortization for a copyright work?
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Because the useful is usually 2 or 3 years, each period's amortization amount is a high proportion of the copyright cost
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How does the amortization for a trademark work?
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If the trademark has an expected useful life it may be amortized but if it has an indefinite life it should not be amortized
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How is the amortization process for a franchise?
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Franchises have indefinite lives, therefore, they are not amortized
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How does goodwill work?
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Goodwill is the excess paid for acquiring a new company. It is an expense and it is not amortized
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What happens to assets with indefinite lives?
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If the value increases then the value may not be marked up, but if the value decreases then a loss is recorded.
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What happens with R&D?
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Costs for R&D need to be recorded as an expenses, and only one exception can occur to record it as an asset.
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