Test 4 Flashcards
(41 cards)
What is a fixed asset?
Long-term tangible asset used to generate revenue (AKA property, plant, and equipment)
What are the 5 depreciation methods?
- Sum of the Year’s Digits
- Declining Balance
- Stright-line
- Activity-based
- Modified accelerated cost recovery system (MACRS, used for tax)
Can you make up your own depreciation method?
No. You must use one of FASB’s four
When do you start depreciating an asset?
When it is in use
If you stop using a fixed asset, it becomes…
An investment (do not depreciate)
A non-monetary exchange has commercial substance if:
It does not generate that same type of revenue (recognize gains and losses)
A non-monetary exchange is non-commercial if:
It earns the same type of revenue (some cash some gains)
When do you record a loss on a non-monetary exchange?
Always
Book Value =
Book Value = Asset Cost - Accumulated Depreciation
Depreciable Base =
Depreciable Base = Original Cost - Salvage Value
What does book value represent?
How much of the cost is left to be depreciated
What is impairment?
When the Fair Market Value of an asset is lower than the Book Value
What is depletion?
Depreciation of natural resources
Should depreciation expense be included in a company’s budget?
No. Depreciation is not a cash flow expense
Does FASB have a 1/2 year convention for its depreciation methods?
No, except for sum-of-the-year’s digits
MACRS does have 1/2 year convention
Which depreciation method is the most accurate?
Activity-based
How do you pick a depreciation method?
Pick one that matches most closely with how you generate revenue over time
Where are fixed assets located in the financial statements?
Balance Sheet
Where is depreciation located in the financial statements?
Income Statement
What are the 5 types of intangibles?
1) Marketing
2) Customers
3) Artistic Creations
4) Contracts
5) Technology
Examples of marketing-related intangibles
Trademarks or trade name, internet domains
Examples of customer-related intangibles
Customer lists, contractual/non-contractual relationships
Examples of artistic creation intangibles
Ownership rights to plays, music, pictures, etc., copyrights
Examples of contract-related intangibles
Franchises, licensing agreements
