Terms Relating to Property, Plant, and Equipment

accelerated method of depreciation A depreciation method that writes off a relatively larger amount of an asset's cost in the early years of its useful life and smaller amounts in later years.

Amortization: The systematic allocation of the cost of an intangible asset to expense over its useful life.

brand name: A word, letter, or group of words or letters that differentiates one manufacturer's or vendor's product from those of competitors.

Capitalized costs: Expenditures that are recorded as an asset on the balance sheet because they provide future economic benefits, rather than being expensed immediately.

Computer software programs, routines, and symbolic languages that control the functioning of hardware and direct its operation, which can be capitalized as an intangible asset or commercialized product.

Copyright: An exclusive right granted by the government giving the owner the right to reproduce, publish, and sell a literary, musical, or artistic work.

declining-balance method An accelerated depreciation method that calculates depreciation expense by applying a constant percentage rate to the remaining net book value of the asset at the beginning of each period.

Depletion: The systematic allocation of the cost of natural resources (such as timber, oil, or minerals) to expense as the resources are extracted or consumed.

double-declining-balance (DDB) method An accelerated depreciation method that computes annual depreciation by applying twice (200%) the straight-line depreciation rate to the asset's beginning book value each year.

franchise: A contractual agreement under which a franchisor grants a franchisee the right to sell certain products, perform specific services, or use certain trademarks, usually within a designated geographic area.

Gain an increase in equity (net assets) from peripheral or incidental transactions of an entity, except those that result from revenues or investments by owners.

Goodwill: The excess of the purchase price of an acquired business over the fair market value of its identifiable net assets; it represents intangible factors like reputation, location, and customer loyalty.

impairment A permanent decline in the fair value of an asset below its carrying amount (net book value) on the balance sheet.

income tax method An accounting method for recording financial transactions or depreciation that complies specifically with tax regulations and laws rather than standard financial accounting principles (such as MACRS).

Intangible assets are long-lived assets used in operations that lack physical substance and are not financial instruments, such as patents, copyrights, trademarks, and goodwill.

loss A decrease in equity (net assets) from peripheral or incidental transactions of an entity, except those that result from expenses or distributions to owners.

modified accelerated cost recovery system (MACRS) The mandatory rules under current federal tax laws in the United States for calculating the depreciation deduction for most tangible property placed in service after 1986.

net book value The cost of an asset minus its accumulated depreciation, accumulated depletion, or accumulated amortization.

net salvage value The estimated selling price of an asset at the end of its useful life minus any expected costs necessary to dismantle, remove, or dispose of it.

Patent: An exclusive right granted by the government enabling the recipient to manufacture, use, or sell an invention for a specified number of years.

Real property: Land and anything permanently attached to it, including buildings, structures, and mineral rights underneath the land.

recoverability test A test used to determine whether an impairment loss should be recognized on a long-lived asset, performed by comparing the asset's net book value to the expected future undiscounted cash flows.

Residual value: The estimated amount that a company expects to receive from the disposal of an asset at the end of its useful life.

scrap value The residual or salvage value of an asset at the end of its physical life, representing the value of the raw materials it contains if sold for scrap or recycling.

sum-of-the-years’ digits method An accelerated depreciation method where the annual depreciation expense is calculated by multiplying the asset's depreciable base by a fraction that decreases each year.

tangible personal property Physical assets that can be moved or touched (such as machinery, equipment, vehicles, and furniture), excluding real property like land and buildings.

Trade name: A name used by a business or corporation to identify its company, products, or services, which can be legally protected through registration.

trademark A distinctive symbol, word, name, device, or logo that identifies a specific product or company and is legally registered for exclusive use by its owner.

units-of-output method A depreciation method where the asset's cost allocation is based directly on the actual number of units or products the asset produces during the period.

units-of-production method A depreciation method that allocates an asset's cost based on its operational activity or usage (such as miles driven or hours operated) rather than the passage of time.