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chapter 11
Advanced PP&E
Issues/Natural
Resources/Intangibles
goals discussion
goals achievement
fill in the blanks
multiple
choice
problems
check list and key terms
Following is a "checklist" of selected key concepts that are likely to be included on an exam. Review and check-off each noted item to be certain that important concepts have not been overlooked in your study.
Define capital expenditure and revenue expenditure.
What three conditions help an item qualify as a capital expenditure?
Be able to record the removal of a depreciable asset from the accounts.
Know how to record the sale of a depreciable asset, including situations involving either a gain or loss.
State the fundamental accounting rules relating to exchanges having commercial substance.
Be able to prepare journal entries necessary to record asset exchange transactions.
What is the basic difference between the tax rules for exchanges and the financial accounting rules?
Know the general principles for asset exchanges that lack commercial substance.
Understand the fundamental accounting issues pertaining to asset impairments.
What types of assets are considered to be natural resources?
Define the term "depletion."
Prepare depletion calculations and the related journal entries.
Distinguish between depletion that is charged to expense and that amount that is appropriately classified as an asset on the balance sheet.
Know how to account for depreciable assets used in conjunction with natural resource extraction.
What types of assets are considered to be intangible?
Define "goodwill."
Define the term "amortization."
What are the basic accounting rules for determining the accounting life for an intangible?
Know to calculate, record, and present amortization in the financial statements.
KEY TERMS AND DEFINITIONS (with links to discussion in text)
| amortization | The process used to allocate the cost of an intangible asset to the accounting periods benefited |
| betterment | Expenditures that improve or increase the service potential of an asset even beyond its original new condition; such costs may be capitalized by increasing the asset's cost |
| boot | Term used to describe additional monetary consideration that may accompany an exchange transaction |
| commercial substance | The quality of an exchange transaction such that it changes the future cash flow potential of the entity |
| depletion | The process used to allocate the cost of a natural resource asset to the accounting periods benefited |
| exchange transaction | Trading one asset for another; to be booked at fair value if the transaction has commercial substance |
| impairment | When the carrying amount of an asset is not recoverable from its future cash flow |
| intangible asset | Long-term asset that lacks physical existence; contract rights, copyrights, patents, trademarks, etc. |
| natural resources | Oil and gas reserves, mineral deposits, thermal energy sources, and standing timber are just a few examples of such assets that a firm may own |
| replacement | A restoration of an asset, at least partially, to its original condition; such costs may be capitalized by reducing accumulated depreciation |
| revenue expenditure | Not a capital expenditure; to be expensed as incurred |