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Comm 217 > chapter 8: depreciation of all type of thangs > Flashcards

chapter 8: depreciation of all type of thangs Flashcards

1
Q

long lived assets

A

tangible or intangible resources owned by a business

used in operation to produce benefits over several years

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2
Q

what are the long term assets?

A

land

equipment

property

biological assets

natural ressources

intangibles

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3
Q

does land record depreciation? Why?

A

nah boy

it never becomes obsolete (unless you destroy the or some thing of the sort)

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4
Q

Caan land be impaired in value?

A

yeee

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5
Q

what re biological assets?

A

living things that you own

plants

animals

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6
Q

what is another frequent term for intangibles?

A

intellectual property

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7
Q

fixed asset turnover ration

formula and meaning

A

how is management using property, plant, and equipment to generate revenues?

operating revenues (net sales) / average net fixed assets

measures the sales dollar generated by each dollar of fixed assets used

higher ratio is gyuer

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8
Q

the cost principle

A

all costs incurred in acquiring long lived asset, placing it for operations, and preparing it for use should be recorded in designated assets account

added to purchase price of assets

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9
Q

what does it mean for costs to be capitalized?

A

when they are recorded as assets on statement of financial position instead of expenses on statement of earnings of the current period

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10
Q

acquisition cost of an asset

A

the amount recorded for the purchase

net cash-equivalent paid or the be paid for the asset

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11
Q

what are the acquisition methods

A

for cash

for debt

for equity (or other non cash cosniderations)

by construction

basket purchase of assets

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12
Q

operating lease

A

short term leases

does not transfer sub tally all risks and rewards of ownership from lesser of the lessee

not recorded on statement of financial position as liabilities

assets not included in fixed assets

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13
Q

finance lease (capital lease)

A

long term leases

acquisition of assets reported in statement of financial position

transfers substantially all risks and rewards of ownership from lesser to lessee

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14
Q

capitalized interest

A

interest on loans attributed to construction assets until its ready for use

reduces company total interest expense until asset is ready for use

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15
Q

basket purchase

A

acquisition of two or more assets in single transaction for single lump sum

cost of each asset must be measured and recorded separately

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16
Q

expenditure

A

payment of money to acquire goods or services

can be recorded as assets or expenses

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17
Q

are expenditures and expenses the same thing?

A

nah boy

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18
Q

how are classified expenditures that are made AFTEr an asset was purchased?

A

ordinary repairs and maintenance or revenue expenditures

extraordinary repairs and betterments

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19
Q

ordinary repairs and maintenance

A

expenditures for normal operating upkeep of long lived assets

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20
Q

revenue expenditures

A

maintain productive capacity of the asset during the current accounting period only

are recorded as expenses

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21
Q

extraordinary repairs

A

infrequent expenditures to enhance the asset’s economic selfness in the future

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22
Q

betterments

A

costs incurred to enhance the productive or service potential of a lang lived asset

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23
Q

capital expeniditures

A

increase productive life , operating efficiency, or capacity of the asset

recorded as increases in assets accounts, not as expenses

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24
Q

depreciation

A

process of cost allocation, not to know the market value of an asset

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25
carrying amount (book value)
acquisition cost of an asset - depreciation and any write offs
26
how do you calculate the remaining life of an asset
(carrying amount / acquisition cost) * estimated useful life
27
estimated useful life
management's estimate of the asset's useful economic life to the the company not total economic life to all potential users
28
continuity assumption
business must consider that they will continue to remain active in a foreseeable future and not liquidate
29
residual salvage value
estimated amount to be recovered - disposal costs all at the end of estimated life of an asset
30
componentization of assets
depreciating different assets separately considering that different assets have different lasting useful lives, remaining life, and residual value
31
what are the three most common depreciation methods?
straight line units of production declining (or diminishing) balance
32
straight line method
most used depreciation is calculated equally each year of an asset's useful life until it gets to the residual value depreciation expense is constant amount each year accumulated depreciation increases equally each year carrying amount decreases by same amount each year
33
units of production method what is the formula
allocates the cost of an asset over its useful life based how much it has produced in the period and how much it can produce ((cost - residual value) / estimated total production) * actual production = depreciation expense
34
why is the units of production method a variable expense?
depreciation expense varies directly with production, or use carrying amount and accumulated depreciation will fluctuate each year
35
declining balance method also give formula
reflects the declining benefits that an asset will provide each year of use also called, accelerated depreciation (cost - accumulated depreciation) * 2 / useful life = depreciation expense accumulated depreciation and depreciation expense are smaller each year
36
when do you choose usually the declining balance method?
when an asset is considered to be more productive in its earliest years, and that it decreases a lot in its latter years
37
what are the two important differences between declining balance method and the two other methods
in the formula of the declining balance method, it doesn't include residual value, but the accumulated depreciation (which increases each year) since accumulated depreciation can't make the carrying amount below the residual value, the depreciation expense of the last year might need to be reduced and formula might be disregarded
38
what is the asset half year rule?
since calculating depreciation can be complicated if an asset isn't actually bought on January 1 of the year, some companies assume they bought their assets halfway through the year
39
can you identify if any company will have higher net earnings in the long term if they use straight line or accumulated depreciation?
nah boy at first, straight line will have higher net earnings but in the latter years, accumulated depreciation will be higher net earnings would come back to the same technically
40
what happens when there is a change in estimate in residual value, expected useful of an asset, or both?
1. first you calculate all the accumulated depreciation from the years before you changed the estimate 2. then, you find the carrying amount which is the original acquisition cost - the accumulated depreciation 3. that carrying amount, you subtract to it the new residual value if there is one which give the new depreciable amount 4. from that amount, you divide the remaining years from the new estimate
41
why do managers use the straight line method?
asset is expected to provide benefits evenly over time easy to explain and use in early years, provide higher net earnings
42
what is an asset's fair value?
amount at which an asset can be bought or sold
43
why would investors be interested in an asset's fair value?
adjusted historical costs are not relevant for their decisions or analysis of cash flows
44
what is the value in use
fair value for long term assets measured at present value (or current cash equivalent values) of future cash flows expected to be derived from the use of the asset over time
45
what are the two steps required to assess assets for impairment?
1. test for impairment 2. computation of impairment loss 3. you write down the asset to its recoverable amount
46
when does impairment occur
when events or changed circumstances cause the carrying amount of assets to exceed recoverable amount carrying amount > recoverable amount
47
computation of impairment loss
carrying amount - recoverable amount
48
can an impairment loss be recovered in the future?
yeee boyyyy
49
what are the types of disposals when companies decide not to use their assets for all their life?
sale trade-in retirement
50
if a disposal happens, at what date must the depreciation of an asset be recorded?
at the date of the disposal
51
how can a gain or loss on disposal occur?
1. depreciation expense is based on estimates that may differ from actual experience 2. depreciation is based on original cost, not current market value
52
why are natural resources called wasting assets?
because they become depleted
53
what is depletion
the systematic and rational allocation of the cost of natural resource over the period of exploitation
54
is depletion considered en expense? why?
it is not considered an expense it turn into an asset that the company now uses to sell or utilize
55
how does one calculate the depletion rate?
dividing (total acquisition - residual value) / estimated units that can be withdrawn like the units of production depreciation method
56
how can intangibles' lives be defined?
definite life indefinite life
57
how are recorded the costs of obtaining an intangible?
as expenses
58
definite life of an intangible
recorded on a straight line basis over useful life called amortization no residual balie
59
amortization
straight line basis recording of the acquisition cost of the intangible over its useful life amortization expense included in statement of earnings
60
indefinite life of intangible
no amortization tested for impairment instead (carrying amount decreases if present)
61
goodwill
most reported intangible favorable reputation of a company only way to report it as an asset is to buy a company purchase price - all net assets of company purchased
62
examples of intangibles
goodwill trademarks patents copyright franchise technology licenses an operating rights leaseholds
63
trademarks
exclusive right to own special name, image, or slogan can be renewed every 15 years those with definite lives amortized in straight line basis
64
patents
granted by Big G for invention exclusive right given tot he owns to use, manufacture and sell new product lasts for period of 20 years
65
copyright
exclusive right to publish, use, and sell a literary, musical, or artistic artwork lasts less than 50 years after authors' death
66
franchise
contractual right to sell certain products or services, use certain trademarks, or perform activities in a geographical region life of franchise depends of a contract
67
technology
costs for computer software and web development has increased significantly in recent years
68
licenses an operating rights
obtained through agreements with governmental units and agencies permit owners to use public property in performing their activities
69
leaseholds
right granted to a lessee under lease contract right to use specific asset
70
is research development an intangible asset?
naaah boooyyy its the expense recorded when you develop intangible assets or other shit
71
are gain and losses affecting the cash flows?
they affect it indirectly they affect net earnings which in turn affects computation of cash flows from operating activities
72
are gain and losses of disposal of long lived assets affecting the cash flows?
they affect it indirectly they affect net earnings which in turn affects computation of cash flows from operating activities
73
how do gains on disposal of long term assets affect net earnings?
it reduces it
74
how do losses on disposal of long term assets affect net earnings?
it increases it

Comm 217 (18 decks)

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