Plant Assets and Depreciation Concepts

Questions and Answers

What are plant assets?

Tangible assets used in a company's operations (correct)

Intangible assets

Assets with a useful life of less than one accounting period

Non-physical assets

What is depreciation?

Process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use

What is salvage value?

Estimate of the asset's value at the end of its benefit period

What does 'useful life' refer to?

The length of time it is productively used in a company's operations Signup and view all the answers

What is the result of obsolescence?

A plant asset that no longer provides a competitive advantage Signup and view all the answers

What is accelerated depreciation?

Yields larger depreciation expenses in the early years of an asset's life Signup and view all the answers

What are capital expenditures?

Additional costs of plant assets that provide benefits extending beyond the current period Signup and view all the answers

Define 'natural resources'.

Assets that are physically consumed when used Signup and view all the answers

Match the following intangible assets with their definitions:

Patent = An exclusive right to manufacture and sell a patented item for 20 years Copyright = Exclusive right to publish and sell a work for the creator's life plus 70 years Trademark = Symbol, name, phrase, or jingle identified with a company or product Goodwill = The value of a company exceeding the value of its assets and liabilities Signup and view all the answers

What is an impairment?

A permanent decline in the fair value of an asset relative to its book value Signup and view all the answers

What is depletion?

Process of allocating the cost of a natural resource to the period when it is consumed Signup and view all the answers

Study Notes

Plant Assets

Tangible assets utilized in company operations, with a useful life exceeding one accounting period.
Also known as plant and equipment, property, plant, and equipment, or fixed assets.

Cost

Encompasses all reasonable expenses necessary to prepare an asset for its intended use.

Land Improvements

Assets with limited useful lives that get consumed, such as parking lots, fences, and lighting systems.

Depreciation

Method of spreading the cost of a plant asset over its beneficial accounting periods.

Salvage Value

Estimated value of an asset at the end of its useful life, also referred to as residual or scrap value.

Useful Life

Duration during which an asset is expected to be used productively by a company.

Inadequacy

Occurs when a company’s plant assets lack sufficient capacity to meet increasing production demands.

Obsolescence

A condition where a plant asset loses its utility in producing goods or services due to innovations or improvements.

Straight-line Depreciation

Constant annual expense charged throughout the asset's useful life.

Units-of-Production Depreciation

Varies the expense charged based on the asset's actual usage each period.

Accelerated Depreciation Method

Leads to higher depreciation expenses earlier in an asset's life with lower amounts in later years.

Declining Balance Method

Applies a depreciation rate to the asset’s beginning book value, which is a multiple of the straight-line rate.

Change in Accounting Estimate

Involves revising the useful life or salvage value estimates of a plant asset.

Impairment

Recognizes a permanent decrease in the fair value of an asset compared to its book value.

Revenue Expenditures

Additional costs that maintain but do not materially enhance an asset’s life or capabilities.

Capital Expenditures

Costs that extend benefits of plant assets beyond the current period.

Ordinary Repairs

Costs incurred to maintain an asset in optimal operating condition.

Betterments

Enhancements that improve an asset's efficiency or productivity.

Extraordinary Repairs

Costs that extend the useful life of an asset beyond its original estimate.

Natural Resources

Assets that get physically consumed in the process of use.

Depletion

Allocating the cost of a natural resource to the periods in which it is consumed.

Intangible Assets

Nonphysical assets providing long-term rights, privileges, or competitive advantages.

Indefinite Life

Intangible assets without limiting factors on their useful life, thus not subject to amortization.

Patent

Exclusive rights for 20 years to manufacture, sell a patented item, or use a patented process.

Copyright

Exclusive rights to publish and sell artistic works during the creator's life plus 70 years.

Franchises and Licenses

Permissions granted to deliver products or services under specific conditions.

Trademark or Trade (Brand) Name

Symbols, names, phrases, or jingles associating with a company, product, or service.

Goodwill

Value exceeding a company's identifiable assets and liabilities, reflecting its overall worth.

Lease

A contract permitting property to be rented.

Lessor

The owner of the property who grants the lease.

Lessee

The individual or entity that secures the right to use and possess the property.

Leasehold

Rights granted by the lessor to the lessee as per the lease agreement.

Leasehold Improvements

Changes and enhancements made to leased properties.

Description

Test your knowledge on plant assets, their costs, and depreciation methods. This quiz covers essential concepts such as salvage value, useful life, and conditions like inadequacy and obsolescence. Perfect for accounting students or professionals seeking a refresher.