Accounting: Plant Assets and Intangibles

Key Accounting Terms

This document defines key accounting terms related to plant assets, intangible assets, and related concepts.

Plant Assets: Resources that have physical substance, are used in the operations of a business, and are not intended for sale to customers.
Cash Equivalent Price: An amount equal to the fair value of the asset given up or the fair value of the asset received, whichever is more clearly determinable.
Depreciation: The process of allocating to expense the cost of a plant asset over its useful life in a rational and systematic manner.
Depreciable Cost: The cost of a plant asset less its salvage value.
Straight-Line Method: A depreciation method in which companies expense an equal amount of depreciation for each year of the asset’s useful life.
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.
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 asset’s useful life.
Accelerated-Depreciation Method: A depreciation method that produces higher depreciation expense in the early years than the straight-line approach.
Impairment: A permanent decline in the fair value of an asset.

Capital Expenditures: Expenditures that increase the company’s investment in plant assets.
Revenue Expenditures: Expenditures that are immediately charged against revenues as an expense.
Ordinary Repairs: Expenditures to maintain the operating efficiency and expected productive life of the asset.
Additions and Improvements: Costs incurred to increase the operating efficiency, productive capacity, or expected useful life of a plant asset.

Intangible Assets: Rights, privileges, and competitive advantages that result from the ownership of long-lived assets that do not possess physical substance.
Amortization: The process of allocating to expense the cost of an intangible asset.
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.
Copyright: An exclusive right granted by the federal government allowing the owner to reproduce and sell an artistic or published work.
Trademark (Trade Name): A word, phrase, jingle, or symbol that distinguishes or identifies a particular enterprise or product.
Franchise: A contractual arrangement under which the franchisor grants the franchisee the right to sell certain products, to perform specific services, or to use certain trademarks or trade names, usually within a designated geographic area.
Goodwill: The value of all favorable attributes that relate to a company that are not attributable to any other specific asset.
Research and Development Costs: Expenditures that may lead to patents, copyrights, new processes, and new products; must be expensed as incurred.

Return on Assets: A profitability measure that indicates the amount of net income generated by each dollar of assets; computed as net income divided by average total assets.
Asset Turnover: Indicates how efficiently a company uses its assets to generate sales; calculated as net sales divided by average total assets.

If Boeing buys equipment, the purchase price, freight costs paid by Boeing, and installation costs are all part of the cost of the equipment.