Accounting 101-Chapter 8
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The amount that includes all of the cost normally necessary to acquire an asset and prepare it for its intended use.
Capitalization of interest
Interest on constructed assets is added to the asset account
Costs that are related to land but that have a limited life.
The allocation of the original cost of an asset to the periods benefited by its use.
Depreciation = Acquisition Cost - Residual Value/Life
The original cost of an asset minus the amount of accumulated depreciation
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
A higher amount of depreciation is recorded in the early years and a lower amount in the later years.
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.
Change in estimate
A change in the life of the asset or in its residual value
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.
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
Gain on Sale of Asset
The excess of the selling price over the asset's book value.
Loss on Sale of Asset
The amount by which selling price is less than book value.
The excess of the purchase price to acquire a business over the value of the individual net assets acquired.
Research and development costs
Costs incurred in the discovery of new knowledge.
Property, Plant, and Equipment/Depreciation Expense
Accumulated Depreciation/Depreciation Expense
Is a measure of the assets' productivity.
Net Sales/Average Total Assets
Determing Cost when group of assets is purchased
Cost=Price Paid for Group X (Market value/Appraised value of group)
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