1. depreciations

the accounting process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset

2. depreciation expense; amortization expense; depletion expense

how do we allocate depreciations costs of the following long-term assets: fixed assets; tangibles; natural resources

3. original cost less salvage value

how do you find depreciation base?

4. activity method

which depreciation method is based on the number of hours worked/units produced?

5. [(cost - salvage) x hours this year]/total estimated hours = depreciation charge

what is the formula for the activity method of depreciation?

6. (cost - salvage)/estimated service life = depreciation charge

what is the formula for the straight-line method of depreciation?

7. each fraction uses the sum of the years as a denominator; the numerator is the number of years of estimated life remaining as of the beginning of the year; [n(n+1)]/2

explain the sum-of-the-years'-digits depreciation method

8. step 1: determine SL rate; Step 2: SLR x declining rate; Step 3: answer from step 1 x BV = depreciation expense for year

what are the steps to find the declining-balance method of depreciation?

9. when the assets are similar in nature and have approximately the same useful lives

when is the group method of depreciation used?

10. when the assets are dissimilar and have different lives

when is the composite approach of depreciation used?

11. management

who determines whether or not an asset has been impaired?

12. the asset has become worthless or its ability to produce revenue at a certain rate has become impaired

what does it mean when a fixed asset has been impaired?

13. is the expected future net cash flows less than carrying amount (BV)? yes --> impairment

what is the recoverability test?

14. assets held for use: excess of carrying amount over FV = impairment loss, depreciate on new cost basis, restoration of impairment loss not permitted; assets held for disposal: excess of carrying amount over FV, less cost of disposal = impairment loss, no depreciation taken, restoration of impairment loss permitted

how do we measure the amount of impairment for fixed assets?

15. NO

Is the sum of future cash flows the same as an assets market value?

16. use the present value of estimated future cash flows from the asset

if you aren't given fair value of an asset, how can you find it?

17. a firm's ability to generate sales from a particular investment in assets

what does the asset turnover ratio measure?

18. net sales/average total assets

how do you find the asset turnover ratio?

19. how effective it is

what does the asset turnover ratio tell about management?

20. the ability to generate operating income from a particular level of sales

what does the profit margin on sales measure?

21. net income/net sales

how do you find the profit margin on sales?

22. how efficient it is at controlling expenses

what does the profit margin on sales tell about management?

23. a firm's success in using assets to generate earnings

what does the rate of return on assets measure?

24. net income/average total assets OR asset turnover ratio x profit margin on sales

how do you find the rate of return on assets?

25. shows effectiveness and efficiency

what does the rate of return on assets tell about management?

26. trademarks, trade names; capitalize acquisition costs; no amortization

Give examples of marketing-related intangible assets and some information about how to record them

27. customer lists; capitalize acquisition costs; amortized to expense over useful life

Give examples of customer-related intangible assets and some information about how to record them

28. the intangible asset or an account called accumulative amortization

when you record amortization of an intangible asset, what do you credit?

29. plays, literary works, musical works; capitalize costs of acquiring and defending; amortize to expense over useful life

Give examples of artistic-related intangible assets and some information about how to record them

30. franchise and licensing agreements; franchise with a limited life should be amortized to expense over the life of the franchise; franchise with an indefinite life should be carried at cost and now amortized

Give examples of contract-related intangible assets and some information about how to record them

31. patented technology and trade secrets; capitalize costs of purchasing a patent; expense any R&D costs in developing a patent; amortize over legal life or useful life, whichever is shorter

Give examples of technology-related intangible assets and some information about how to record them

32. a company purchases and entire business; goodwill is the cost of the purchase over the FMV of the identifiable net assets purchased (FMV of assets - FMV of liabilities)

how does a company get goodwill?

33. amortized intangibles: tested same way as LT PP&E; non-amortized intangibles: tested with simple comparison of BV and FV; goodwill: tested in process that first estimates FV of entire reporting (operating) unit and then tests for impairment

what are the rules for impairing (testing) intangibles?

34. non-amortized intangibles and goodwill

which assets must be tested for impairment at least once a year?

35. 1. compare FV of the reporting unit to the BV of net assets (assets - liabilities) [FV is calculated using PV of cash flows or earnings multiples; if FV < BV of net assets, impairment exists] 2. estimated FV of identifiable assets is compared to the estimated FV of the reporting unit and the residual is assumed to be implied goodwill [impairment loss is the difference between the new estimate of goodwill (implied) and the recorded value of goodwill

what are the steps in testing goodwill for impairment?

36. also called p/e ratio or earnings multiple; price of stock/earnings of company

what is the price-to-revenue ratio also called? how do you find it?