Final Exam Review Ch. 8 Flashcards
(33 cards)
Define Plant Assets
Tangible long-lived assets used to produce/sell products and services
What are the 2 important features of Plant Assets?
- Used in operations
- Useful life extends over more than 1 period.
How do we account for Plant Assets?
- Compute the cost of acquisition
- Compute the use of the asset
a. allocate cost to periods benefited by asset
b. account for subsequent expenditures - Record disposal
How do we determine the cost of Plant Assets?
Sum all costs to acquire and prepare the asset for use
When determining the cost of a Plant Asset, when is an expenditure recorded as part of the cost of the plant asset?
Must be
1. Normal
2. Necessary
3. Reasonable
Define Depreciation.
The expense created by allocating the costs of PP&E to periods in which they are used.
What factors determine Depreciation?
- Cost of all necessary and reasonable expenditures to acquire and prepare the asset for its intended use.
- Salvage value at end of useful life
- Useful life
What methods are used to allocate the costs of Depreciation?
- Straight-Line Depreciation
- Units-of-Production
- Double-Declining Balance
What are the 2 steps for determining Depreciation using the Units-of-Production method?
- Compute depreciation per unit
- Compute the depreciation expense.
What are the 3 steps for determining Depreciation using the Double-Declining Balance Method
- Compute the SLD rate
- Multiply SLD by 2
- Compute Depreciation
When do we record a change in estimates?
When new information, developments, or improved judgements impact current and future periods.
How do we determine if we should expend or capitalize maintenance, repairs, and improvements?
Expense if costs don’t increase plant asset’s life or capabilities
Capitalize if costs provide material benefits that extend beyond current period.
How do we record Revenue Expenditures?
Using the Income Statement: Recorded as an expense on current period’s Income Statement
Ordinary repairs: Expense as incurred
How do we Capitalize Expenditures?
- Balance Sheet expenditure
- Betterments
- Extraordinary Repairs
How do we dispose of Plant Assets?
- Discarding
- Sale
- Exchange
What are the 4 steps for Accounting for Disposals?
- Record depreciation up to date of disposal
- Record removal of disposed asset’s account balances
- Record any cash/other assets received/paid in disposal
- Record any gain/loss
What are the 3 ways we can sell Plant Assets?
- At Book Value
- Above Book Value
- Below Book Value
What are Natural Resources?
Assets that are physically consumed when used.
How are the costs to Natural Resources determined?
Sum off all expenditures necessary to acquire and prepare the Natural Resource for use
What is depletion?
the process of allocating cost of natural resources to periods when they are consumed and sold.
Where is depletion reported?
Balance Sheet
Define Intangible Assets.
Long-term assets lacking physical form, used to produce and sell products and services, that have uncertain benefits.
How do we determine costs for limited life intangible assets?
Amortize cost over useful life, using SLD
How is amortization recorded?
In Accumulated amortization
