Accelerated amortization method:
Amortization methods that produce larger amortization charges during the early years of an asset's life and smaller charges in the later years.
Amortization:
The expense created by allocating the cost of plant and equipment to the periods in which they are used; represents the expense of using the assets. (Chapter 4) A process of systematically allocating the cost of a capital asset to expense over its estimated useful life.
Betterment:
An expenditure to make a capital asset more efficient or productive and/or extend the useful life of a capital asset beyond original expectations; also called improvements. Betterments are debited to a capital asset account.
Book value:
The original cost of a capital asset less its accumulated amortization.
Capital assets:
Include long-term tangible assets, such as plant and equipment, and intangible assets, such as patents. Capital assets are expected to provide benefits for more than one period. Assets used in the operations of a company that have a useful life of more than one accounting period; also known as fixed assets, or property, plant and equipment.
Capital Cost Allowance (CCA):
The system of amortization required by federal income tax law.
Capital expenditures:
Costs of capital assets that provide material benefits extending beyond the current period. They are debited to capital asset accounts and reported on the balance sheet.
Change in an accounting estimate:
A change in a computed amount used in the financial statements that results from new information or subsequent developments and from better insight or improved judgement.
Copyright:
A right granted by the federal government or by international agreement giving the owner the exclusive privilege to publish and sell musical, literary, or artistic work during the life of the creator plus 50 years .
Cost:
Includes all normal and reasonable expenditures necessary to get a capital asset in place and ready for its intended use.
Declining-balance amortization:
An amortization method in which a capital asset's amortization charge for the period is dete rmined by applying a constant amortization rate (up to twice the straight-line rate) each year to the asset's book value at the beginning of the year.
Depletion:
The process of allocating the cost of natural resources to the periods in which they are consumed. Another term for amortization of natural resources.
Depreciation:
An American term used to describe amortization. See amortization.
Double-declining-balance amortization:
See declining-balance amortization.
Goodwill:
The amount by which the value of a company exceeds the fair market value of the company's net assets if purchased separately.
Half-year rule:
A method of calculating amortization for partial periods. Six- months amortization is taken regardless of when the asset was acquired or dispo sed of. The half-year rule is used to calculate CCA in the first year of an asset's life for tax purposes.
Inadequacy:
A condition in which the capacity of the company's capital assets is too small to meet the company's productive demands.
Intangible assets:
Long-lived (capital) assets that have no physical substance but convey a right to use a product or process. (Chapters 4 and 5) Rights, privileges, and competitive advantages to the owner of capital assets used in operations that have no physical substance; examples include patents, copyrights, leaseholds, leasehold improvements, goodwill, and trademarks.
Land improvements:
Assets that increase the usefulness of land but that have a limited useful life and are subject to amortization.
Lease:
A contract allowing property rental.
Leasehold:
A name for the rights granted to the lessee by the lessor by a lease.
Lessee:
The party to a lease that secures the right to possess and use the property.
Lessor:
The party to a lease that grants the right to possess and use property to another.
Lump-sum purchase:
Purchase of capital assets in a group with a single transaction for a lump-sum price. The cost of the purchase must be allocated to individual asset accounts.
Natural resources:
Assets that are physically consumed when used; examples include timber, mineral deposits, and oil and gas fields; also called wasting assets.
Obsolescence:
A condition in which, because of new inventions and improvements, a capital asset can no longer be used to pro-duce goods or services with a competitive advantage.
Patent:
An exclusive right granted to its owner by the federal government to manufacture and sell a machine or device, or to use a process, for 20 years.
Repairs:
Expenditures made to keep a capital asset in normal, good operating condition; treated as a revenue expenditure.
Revenue expenditure:
An expenditure that should appear on the current income statement as an expense and be deducted from the period's revenues because it does not provide a material benefit in future periods.
Revised amortization:
Recalculating amortization because of a change in cost, salvage, or useful life.
Salvage value:
Management's estimate of the amount that will be recovered at the end of a capital asset's useful life through a sale or as a trade-in allowance on the purchase of a new asset; also called residual or scrap value.
Service life:
See Useful life.
Straight-line amortization:
A method that allocates an equal portion of the total amortization for a capital asset (cost minus salvage) to each accounting period in its useful life.
Trademark:
A symbol, name, phrase, or jingle identified with a company, product, or service. Also referred to as trade name.
Units-of-production amortization:
A method that charges a varying amount to expense for each period of an asset's useful life depending on its usage; expense is computed by taking the cost of t he asset less its salvage value and dividing by the total number of units expected to be produced during its useful life.
Useful (or service) life:
The length of time in which a capital asset will be productively used in the operations of the business.
