3.4 Pt 2 —> Intangible Assets & Depreciation Flashcards
(16 cards)
Define Intangible Assets
non-physical, long-term business assets that hold value and provide commercial benefit,
often protected by intellectual property rights
State 5 types of intangible assets
Goodwill
Patents
Copyrights
Trademarks
Licenses
Define Goodwill
Value of favourable asserts that relate to a business: reputation, customer loyalty, and employee dedication ; only realised when a business is sold, valued as the amount paid for a firm above its book value
Define patents
Exclusive rights to commercialise (use, sell or control) their invention of a product for a period; encourages innovation and prevents copying (bc of legal protection)
Define copyrights
Legal rights over original creative works; prevent unauthorised use of written/music content
Define trademarks
Protect brand names, logos, and slogans; help distinguish the business from competitors
Licenses define
Legal rights to operate or use another party’s property, tech, brand, software; often time-limited + in exchange of a fee
Define depreciation
fall in value of a non-current asset over time, due to wear and tear or outdatedness. Recorded as an expense to reflect the decline in the asset’s economic value.
What are 2 methods to calculate depreciation
Straight line & units of production
Explain straight line method of differentiation + formula
Depreciates asset evenly over time; easy to calculate and suitable for consistent-use assets
(Original Cost – Residual Value) ÷ Useful Life
Explain units of production method and formula
Depreciation based on asset usage; better for fluctuating output
Depreciation per unit × Units used
to find depreciation per unit= (cost - residual value) ÷units ove useful life
State straight line depreciation method advantages and hen its appropriate
Simple,
predictable,
good for consistent usage.
Accepted by tax authorities.
Best for assets that depreciate evenly over time, such as furniture or fixtures;
suitable for small businesses valuing simplicity and consistent annual expense
State disadvantages of depreciation method straight line
Unrealistic for assets that lose value faster early on.
Estimates life expectancy & residual value.
Doesn’t take into account changes of technology (assets may be worth less)
State advantages + when appropriate to use units of production depreciation method
More accurate for usage-based wear and tear.
Helps plan maintenance + replacement better, based on output rather than time.
Prevents over-depreciating value that has at been used much.
Ideal when asset wear depends on usage (e.g. machinery); suited for businesses with fluctuating output, as depreciation aligns with actual use
State disadvantages of units of production depreciation method
Complex;
requires accurate estimates;
not always accepted for tax.
Needs to be calculated each year.
Machine may be less productive than expected.
What do both methods of depreciation not include
change of costs of repairs and maintenance
