PPE and Intangibles Flashcards
(14 cards)
What is the difference between depreciation and amotisation?
depreciation is used for tangible assets (PPE)
amortisation is used for intangible assets (goodwill, capitalised development costs, software, patents, licenses, brands)
Depreciable amount formula
Depreciable amount = Cost of asset - Estimated residual value
what is Impairment?
Impairment = occurs when an asset’s market value drops below its recorded book value on the financial statements
What is the carrying amount (net book value)?
Carrying amount/net book value = difference between a PPE’s cost and accumulated depreciation. Carrying amount of an item PPE = Cost - Accumulated Depreciation
What is (Asset) book value?
Asset book value = its original cost minus accumulated depreciation and any impairment costs. It represents the value of the asset on the company’s balance sheet
Book value is the asset’s original cost minus depreciation, amortization, or impairment. It’s what appears on the company’s balance sheet and reflects historical accounting values.
what is goodwill?
Goodwill is “the excess of the cost of purchasing another company over the sum of the fair values of the acquired company’s net assets (assets minus liabilities)”
What is fair value?
Fair value is the current market value—the price the asset could be sold for in an open, arms-length transaction between informed parties.
what is the Relative-sales-value method?
Relative-sales-value method = in a lump-sum purchase where ie. land and building is bought for one price, the two assets must be valued through and appraisal and then the ratio between the two can be turned into a percentage to account for the actual cost.
What does Capital expenditures mean?
Capital expenditures are said to be “capitalized,” which means the cost is added to an asset account and not expensed immediately. ie. fixing a wall in a building. This cost is capitalised as it increases the life time of the asset.
what is the Estimated residual value?
Estimated residual value (scrap value or salvage value) = the expected amount an asset can be sold for after its useful life, minus disposal costs.
This value isn’t depreciated because it’s expected to be recovered. If no residual value is expected, the full asset cost is depreciated. It can be stated as a fixed amount or a percentage of the asset’s cost.
How do we determine the Depreciable amount?
Depreciable amount = Cost of asset - Estimated residual value
Straight-line depreciation per year FORMULA
Straight-line depreciation per year = (Cost - Residual value) / Useful life in years
Units-of-production depreciation FORMULA
Units-of-production depreciation per unit of output = (Cost - Residual value) / Useful life in units of production
DDB depreciation FORMULA
DDB depreciation rate per year = 1 / Useful life in years * 2
