Intermediate Accounting - Chapter 11

Front 1

Accelerated Depreciation Method

Back 1

Refers to any one of several methods by which a company, for 'financial accounting' or tax purposes, depreciates a fixed asset in such a way that the amount of depreciation taken each year is higher during the earlier years of an asset's life.

Front 2

Activity Method

Back 2

Assumes that depreciation is a function of use or productivity, instead of the passage of time.

Front 3

Amortization

Back 3

The expiration of of intangible assets, such as patents or copyrights.

Front 4

Asset Turnover

Back 4

This ratio divides net sales by average total assets for the period. The resulting number is the dollars of sales produced by each dollar invested in assets.

Front 5

Composite Approach

Back 5

Used when the assets are dissimilar and have different lives.

Front 6

Composite Depreciation Rate

Back 6

Determined by dividing the depreciation per year by the total cost of the assets.

Front 7

Cost Depletion

Back 7

Cost depletion looks at the total amount of the resource to be extracted, how much was extracted during the tax year and the amount of money spent to extract it. The proportion of resources extracted divided by the total resources is the percentage used to help determine the deduction in that period.

Front 8

Declining-Balance Method

Back 8

Utilizes a depreciation rate that is some multiple of the straight-line method.

Front 9

Decreasing-Charge Method

Back 9

Provides for a higher depreciation cost in the earlier years and lower charges in later periods.

Front 10

Depletion

Back 10

The reduction in the cost of natural resources over a period of time.

Front 11

Depreciation

Back 11

The accounting process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset.

Front 12

Depreciation Base

Back 12

Used to describe the value that is divided by the service life of the asset to determine the annual depreciation expense under the straight line method. The depreciable base is the value of the asset to be written off over time.

Front 13

Development Cost

Back 13

1. tangible equipment costs and

2. intangible development costs.

Front 14

Double-Declining-Balance Method

Back 14

Depreciates assets at twice the straight line rate.

Front 15

Exploration Costs

Back 15

Costs incurred to find the resource.

Front 16

Full-Cost Concept

Back 16

Describes when all fixed and variable costs, including manufacturing costs, are used to compute the total cost per unit. Full costing includes these costs when computing the amount of money it takes to produce and distribute one unit of output.

Front 17

Group Method

Back 17

Used when the assets are similar in nature and have approximately the same useful lives.

Front 18

Impairment

Back 18

Write off of a long lived asset.

Front 19

Inadequacy

Back 19

Results when an asset ceases to be useful to a company because the demands of the firm have changed.

Front 20

Liquidating Dividends

Back 20

Dividends greater than the amount of accumulated net income.

Front 21

Modified Accelerated Cost Recovery System (MACRS)

Back 21

Enacted by Congress in 1986. Applies to depreciable assets placed in service in 1987 and later.

Front 22

Natural Resources

Back 22

Wasting assets. Include petroleum, minerals, and timber.

1. the complete removal (consumption) of the asset, and

2. replacement of the asset only by an act of nature.

Front 23

Obsolescence

Back 23

The catchall for situation not involving inadequacy and supersession.

Front 24

Percentage Depletion

Back 24

A taxable deduction that assigns a set percentage of depletion to the gross income derived from extracting fossil fuels, minerals or other nonrenewable resources from the earth. Percentage depletion is provided as an incentive for drillers and investors to develop domestic mineral and energy production.

Front 25

Profit Margin on Sales

Back 25

Return on sales. Net income divided by net sales.

Front 26

Recoverability Test

Back 26

Used to determine whether an impairment has occurred.

Front 27

Reserve Recognition Accounting (RRA)

Back 27

Used to account for any increases in reserves (oil, gas, etc.) which would lead to an increase in assets and potentially earnings on a company's financial statements.

Front 28

Restoration Costs

Back 28

Substantial costs to restore property to its natural state after extraction has occurred.

Front 29

Return on Assets (ROA)

Back 29

Computed directly by dividing net income by average total assets.

Front 30

Salvage Value

Back 30

The estimated amount that a company will receive when it sells the asset or removes it from service.

Front 31

Straight-Line Method

Back 31

Considers depreciation as a function of time rather than a function of usage.

Front 32

Successful-Efforts Concept

Back 32

The belief that companies should capitalize only the costs of successful projects.

Front 33

Sum-of-the-Years'-Digits Method

Back 33

Results in a decreasing charge based on a decreasing fraction of depreciable cost.

Front 34

Supersession

Back 34

The replacement of one asset with another more efficient and economical asset.