Plant Asset Disposals, Natural Resources, and Intangible Assets

Key terms

Amortization The term used to describe the systematic write-off of the cost of an intangible asset to expense.

Capital lease A lease that transfers to the lessee virtually all of the rewards and risks that accompany ownership of property.

Commercial substance The result if an exchange of nonmonetary assets causes future cash flows to differ significantly.

Copyright An exclusive right granted by the federal government giving protection against the illegal reproduction by others of the creator's written works, designs, and literary productions.

Depletion The exhaustion of a natural resource; an estimate of the cost of the resource that was removed from its natural setting during the period.

Finite Useful Life Length of time an intangible asset is expected to contribute to the cash flows of the entity.

Franchise A contract between two parties granting the franchisee (the purchaser of the franchise) certain rights and privileges ranging from name identification to complete monopoly of service.

Goodwill An intangible value attached to a company resulting mainly from the company's management skill or know-how and a favorable reputation with customers. Evidenced by the ability to generate an above-average rate of income on each dollar invested in the business.

Intangible assets Items that have no physical characteristics but are of value because of the advantages or exclusive privileges and rights they provide to a business.

Lease A contract to rent property. Grantor of the lease is the lessor; the party obtaining the rights to possess and use property is the lessee.

Leasehold The rights granted under a lease.

Leasehold improvement Any physical alteration made by the lessee to the leased property in which benefits are expected beyond the current accounting period.

Natural resources Resources supplied by nature, such as ore deposits, mineral deposits, oil reserves, gas deposits, and timber stands supplied by nature.

Operating lease A lease that does not qualify as a capital lease.

Patent A right granted by the federal government giving the owner the exclusive right to manufacture, sell, lease, or otherwise benefit from an invention for a limited period.

Research and development (R&D) costs Costs incurred in a planned search for new knowledge and in translating such knowledge into a new product or process.

Total assets turnover Equal to Net sales/Average total assets. This ratio indicates the efficiency with which a company uses its assets to generate sales. 

Trademark A symbol, design, or logo used in conjunction with a particular product or company.

Trade name A brand name under which a product is sold or a company does business.

Wasting assets See Natural resources.