Property, Pant, & Equipment Flashcards
These are costs that are deemed ordinary and necessary to get an item in place and in condition for its intended use.
Capital Expenditures
It is a single price paid for a package of assets; the purchase price must be allocated to each of the components
Lump-sum purchase
It is called the accounting periods benefited
Service life
Define depreciation.
It is the allocation of an asset’s cost to the accounting periods benefited
List the three factors that contribute to depreciation
- Physical deterioration
- Obsolescence
- Inadequacy
This is the amount expected to be realized at the end of an asset’s service life
Salvage value or residual value
This is the amount of cost that will be allocated ot the service life; cost - salvage value
Depreciable base
Refers to the balance sheet amount at a point in time that reveals the cost minus the amount of accumulated depreciation
Book value
Annual depreciation is calculated by dividing the depreciable base by the service life
Straight-line method
This method results in relatively large amounts of depreciation in early years of asset life and smaller amounts in later years
Double-declining balance method
What is the formula for depreciation expense?
Remaining book value * accelerated depreciation rate
Formula for accelerated depreciation rate
2 * (1/useful life)
If cash is greater than business value
Record as credit
Defined as expenses that are infrequent, unusual, and significant in size
Extraordinary item
