Accounting 101-Chapter 8

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  1. Acquisition Cost
    The amount that includes all of the cost normally necessary to acquire an asset and prepare it for its intended use.
  2. Capitalization of interest
    Interest on constructed assets is added to the asset account
  3. Land improvements
    Costs that are related to land but that have a limited life.
  4. Depreciation
    The allocation of the original cost of an asset to the periods benefited by its use.
  5. Straight-line method
    Depreciation = Acquisition Cost - Residual Value/Life
  6. Book value
    The original cost of an asset minus the amount of accumulated depreciation
  7. Units-of-production method
    Depreciation is determined as a function of the number of units the asset produces.

    Depreciation per Unit =Acquisition Cost-Residual Value/Total Number of Units in Asset's Life

    Annual Depreciation=Depreciation per Unit X Units Produced in Current Year
  8. Accelerated depreciation
    A higher amount of depreciation is recorded in the early years and a lower amount in the later years.
  9. Double-declining-balance method
    Depreciation is recorded at twice the straight-line rate, but the balance is reduced each period.  This constant rate is applied to the full cost or initial book value, not to cost minus residual value.
  10. Change in estimate
    A change in the life of the asset or in its residual value
  11. Capital expenditure
    A cost that improves the asset and is added to the asset account.

    When an expenditure increases the life of the asset or its productivity, it should be treated as a capital expenditure and added to the asset account.
  12. Revenue expenditure
    A cost that keeps an asset in its normal operating condition and is treated as an expense.

    When an expenditure simply maintains an asset in its normal operating condition, however, it should be treated as an expense
  13. Gain on Sale of Asset
    The excess of the selling price over the asset's book value.
  14. Loss on Sale of Asset
    The amount by which selling price is less than book value.
  15. Goodwill
    The excess of the purchase price to acquire a business over the value of the individual net assets acquired.
  16. Research and development costs
    Costs incurred in the discovery of new knowledge.
  17. Average Life
    Property, Plant, and Equipment/Depreciation Expense
  18. Average Age
    Accumulated Depreciation/Depreciation Expense
  19. Asset Turnover
    Is a measure of the assets' productivity.

    Net Sales/Average Total Assets
  20. Determing Cost when group of assets is purchased
    Cost=Price Paid for Group X (Market value/Appraised value of group)
Card Set:
Accounting 101-Chapter 8
2015-07-19 17:31:52

Operating Assets: Property, Plant, and Equipment, and Intangibles
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