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Glossary

Chapter 9

Reporting and Analyzing Long-Lived

Accelerated-depreciation method
A depreciation method that produces higher depreciation
expense in the early years than in the later years. (p. 429)
Additions and improvements
Costs incurred to increase the operating efficiency, productive
capacity, or expected useful life of a plant asset. (p. 412)
Amortization
The allocation of the cost of an intangible asset to expense.
(p. 420)
Asset turnover ratio
Measure of sales volume, calculated as net sales divided by
average total assets. (p. 418)
Average age of plant assets
Measure of the age of a company's plant assets, calculated
as accumulated depreciation divided by depreciation
expense. (p. 417)
Average useful life
A comparative measure of plant assets, calculated as the
average cost of plant assets divided by depreciation expense.
(p. 416)
Capital expenditures
Expenditures that increase the company's investment in
productive facilities. (p. 400)
Capital lease
A long-term agreement allowing one party (the lessee) to use
another party's asset (the lessor). The arrangement is
accounted for like a purchase. (p. 403)
Cash equivalent price
An amount equal to the fair market value of the asset given

up or the fair market value of the asset received, whichever is


more clearly determinable. (p. 400)
Copyright
An exclusive right granted by the federal government allowing
the owner to reproduce and sell an artistic or published work.
(p. 422)
Declining-balance method
A depreciation method that applies a constant rate to the
declining book value of the asset and produces a decreasing
annual depreciation expense over the useful life of the asset.
(p. 408)
Depreciable cost
The cost of a plant asset less its salvage value. (p. 406)
Depreciation
The process of allocating to expense the cost of a plant asset
over its useful life in a rational and systematic manner. (p.
404)
Franchise
A contractual arrangement under which the franchisor grants
the franchisee the right to sell certain products, to render
specific services, or to use certain trademarks or trade
names, usually within a designated geographic area. (p. 422)
Goodwill
The value of all favorable attributes that relate to a business
enterprise. (p. 423)
Impairment
A permanent decline in the market value of an asset. (p. 412)
Intangible assets
Rights, privileges, and competitive advantages that result
from the ownership of long-lived assets that do not possess
physical substance. (p. 420)
Lessee
A party that has made contractual arrangements to use
another party's asset without purchasing it. (p. 402)

Lessor
A party that has agreed contractually to let another party use
its asset. (p. 402)
Licenses
Operating rights to use public property, granted by a
governmental agency to a business enterprise. (p. 423)
Operating lease
An arrangement allowing one party (the lessee) to use the
asset of another party (the lessor). The arrangement is
accounted for as a rental. (p. 403)
Ordinary repairs
Expenditures to maintain the operating efficiency and
expected productive life of the asset. (p. 412)
Patent
An exclusive right issued by the u.s. Patent office that
enables the recipient to manufacture, sell, or otherwise
control an invention for a period of 20 years from the date of
the grant. (p. 421)
Plant assets
Tangible resources that have physical substance, are used in
the operations of the business, and are not intended for sale
to customers. (p. 398)
Research and development costs
Expenditures that may lead to patents, copyrights, new
processes, and new products. (p. 422)
Revenue expenditures
Expenditures that are immediately charged against revenues
as an expense. (p. 400)
Straight-line method
A method in which periodic depreciation is the same for each
year of the asset's useful life. (p. 406)
Trademark (trade name)
A word, phrase, jingle, or symbol that distinguishes or
identifies a particular enterprise or product. (p. 422)

Units-of-activity method
A depreciation method in which useful life is expressed in
terms of the total units of production or use expected from the
asset. (p. 408)