Term
Tangible assets, def and examples |
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Definition
Have a physical presence, they can be seen and touched. Include equipment, machinery, natural resources, and land |
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Term
Intangible, def and examples |
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Definition
Have no physical form. rights or privileges. Include patents, copyrights, |
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Term
How do we account for decreases in value of property, plant and equipment? |
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Definition
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Term
How do we account for decreases in value of Natural resources? |
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Definition
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Term
How do we account for decreases in value of Land? |
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Definition
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Term
How do we account for decreases in value of intangible assets with identifiable useful lives? |
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Definition
Amortization, using shorter of legal life or useful life |
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Term
How do we account for decreases in value of intangible assets with unidentifiable useful lives? |
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Definition
No loss in value unless value impaired somehow, usually have indefinite value |
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Term
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Definition
Cost of asset = amount paid for it + transport and costs necessary to get asset up and functioning |
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Term
Basket purchase allocation |
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Definition
When assets are purchased in a group their relative costs are calculated by their relative fair market value
Ex. $240,000 purchase Values $270,000 building, $90,000 land
Costs: 180000 building, 60,000 land |
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Term
Straight line depreciation |
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Definition
Costs-salvage value/useful life Costs recognized annually |
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Term
Double declining balance depreciation |
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Definition
Straight line rate = 1/useful life Double declining balance rate = 2(straight line rate) Depreciation expense = double declining balance rate * book value of asset at beginning of period Book value = (Historical Cost - accumulated depreciation) -cannot fall below salvage value |
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Term
Units of productions depreciation |
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Definition
(Cost - salvage value)/total estimated units of production * units of production in current year = annual depreciation expense |
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Term
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Definition
Costs to keep asset in working order (routine maintenance, minor repairs) |
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Term
Costs that are capitalized |
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Definition
Substantial amounts spent to extend asset life or improve quality (ie essentially new asset, for example a new engine, etc)
If improve quality: accounted for by higher depreciation costs over remaining life of asset
If extend life: Cost added to book value and life extended accordingly |
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Term
Depleting natural resources |
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Definition
Costs per unit = Cost to buy/number units of natural resource
Expense for depletion = units used * cost per unit |
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Term
Amortizing intangible assets |
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Definition
Trademarks: Virtually infinite life so not expensed annually unless costs to defend incurred
Patents: Expensed over life of patent
Copyrights: Indefinite length for not expensed annually
Franchises: Expensed over life (estimated)
Goodwill: Difference in purchase price and value of asset, value of business reputation, |
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Term
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Definition
Potential obligation arising from past event - examples: Pending lawsuit, warranties, sick pay, etc |
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Term
Accounting for Contingent Liability |
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Definition
If likely to be recognized (incurred) and can be reasonably estimated: Must be included in financial statements at liability on balance sheet
If reasonably possible or likely but cannot be reasonably estimated, included at footnote in financial statements
If likelihood is remote, not liability must be recognized or included in footnotes |
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Term
Accounting for warranty obligations |
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Definition
Liability that must be reported, booked as estimated liability and expense, as warranties incurred, warranties payable reduced and cash reduced |
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Term
Accounting for notes payable |
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Definition
Book cash and note payable liability when issued, book interest annually until end of liability term and book principle repayment at end of term |
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Term
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Definition
Sales tax payable booked, cash booked, until payed to state/government |
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