Accounting 221 Chapter 8

have a physical presence; they can be seen and touched. Intangible assets are rights or privileges. They cannot be seen or touched.

1. Property, Plant, and Equipment - Sometimes called plant assets or fixed assets. We depreciate these assets over their useful life. 2. Natural Resources - Mineral deposits, oil and gas reserves, timber stands, coal mines, and stone quarries are some examples of natural resources. We deplete these assets over their useful life. 3. Land - Has an infinite life and is not subject to depreciation.

These intangibles include patents and copyrights. We amortize the cost of each over its useful life.

These intangibles include renewable franchises, trademarks, and goodwill. The cost of these assets is not expensed unless it can be shown that there has been an impairment in value.

Purchase price, Sales taxes, Title search and transfer document costs, Realtor's and attorney's fees, and Remodeling costs.

Purchase price (less discounts), Sales taxes, Delivery costs, Installation costs, and Costs to adapt to intended use.

Purchase price, Sales taxes, Title search and transfer document costs, Realtor's and attorney's fees, Costs of removal of old buildings, and Grading costs.

1)Acquire Funding 2)Buy Asset 3)Use Asset 4)Retire Asset

The same amount of depreciation is taken each accounting period.

produces more depreciation expense in the earlier years of an asset's life, with a decline amount of expense in later years

produces varying amounts of depreciation in different accounting periods depending upon the number of units produced.

The cost of routine maintenance and minor repairs that are incurred to keep an asset in good working order are expensed as incurred.

Expenditures that improve the quality of an asset are capitalized as part of the cost of that asset.

Trademarks A name or symbol that identifies a company or a product. The cost of a trademark may include design, purchase, or defense of the trademark.

Patents The exclusive legal right to produce and sell a product that has one or more unique features. The legal life of a patent is 20 years.

Copyrights Protection of writings, musical composition, work of art, or other intellectual property. The protection extends for the life of the creator plus 70 years.

Franchise The exclusive right to sell products or perform services in certain geographic areas.

Goodwill The excess of cost over fair value of net tangible assets acquired in a business acquisition.

An asset with an identifiable useful life is amortized using the straight-line method over the intangible's legal life or its useful life.

Intangible assets with indefinite useful lives must be tested for impairment annually. If the fair value of the intangible asset is less than its book value, an impairment loss is recognized.