Property, Plant, and Equipment

Accelerated depreciation methods Record higher amounts of depreciation during the early years of an asset's life and lower amounts in later years.

Acquisition cost Amount of cash and/or cash equivalents given up to acquire a plant asset and place it in operating condition at its proper location.

Appraised value An expert's opinion as to what an item's market price would be if the item were sold.

Betterments (improvements) Capital expenditures that are properly charged to asset accounts because they add to the service-rendering ability of the assets; they increase the quality of services obtained from an asset.

Book value An asset's recorded cost less its accumulated depreciation.

Capital expenditures Expenditures debited to an asset account or to an accumulated depreciation account.

Depreciation The amount of plant asset cost allocated to each accounting period benefiting from the plant asset's use. The straight-line depreciation method charges an equal amount of plant asset cost to each period. The units-of-production depreciation method assigns an equal amount of depreciation for each unit of product manufactured or service rendered by an asset. The double-declining-balance (DDB) method assigns decreasing amounts of depreciation to successive periods of time.

Double-declining-balance (DDB) depreciation See depreciation.

Extraordinary repairs Expenditures that cancel a part of the existing accumulated depreciation because they increase the quantity of services expected from an asset.

Fair market value The price that would be received for an item being sold in the normal course of business (not at a forced liquidation sale).

Inadequacy The inability of a plant asset to produce enough products or provide enough services to meet current demands.

Land improvements Attachments to land, such as driveways, landscaping, parking lots, fences, lighting systems, and sprinkler systems, that have limited lives and therefore are depreciable.

Low-cost items Items that provide years of service at a relatively low unit cost, such as hammers, paperweights, and drills.

Obsolescence Decline in usefulness of an asset brought about by inventions and technological progress.

Physical deterioration Results from use of the asset - wear and tear - and the action of the elements.

Plant and equipment A shorter title for property, plant, and equipment; also called plant assets. Included are land and manufactured or constructed assets such as buildings, machinery, vehicles, and furniture.

Rate of return on operating assets Net operating income/Operating assets. This ratio helps management determine how effectively it used assets to produce a profit.

Revenue expenditures Expenditures (on a plant asset) that are immediately expensed.

Salvage value The amount of money the company expects to recover, less disposal costs, on the date a plant asset is scrapped, sold, or traded in. Also called scrap value or residual value.

Straight-line depreciation See depreciation.

Tangible assets Assets that we can see and touch such as land, buildings, and equipment.

Units-of-production depreciation See depreciation.

Useful life Refers to the length of time the company owning the asset intends to use it.