UCBUGBA102ATopic06PracticeQuestionsSolns - Topic06...

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Topic06 Long-Term Assets Question 1. In a short sentence, define the following terms: a. Capitalization of Interest refers to the treatment of interest costs attributable to long-term projects as assets rather than as expenses. b. Depletion of Natural Resources represents the allocation of losses due to the decline in value of an exhaustable natural asset over the period of extraction or harvesting. c. Patent gives the owner an exclusive right under federal law to use, manufacture or sell an invention. Patents are usually granted for periods up to 20 years. d. Impairment of Assets represents a one-time reduction in the value of an asset assessed periodically and subject to a test whereby the future cash flows from the asset are compared to the book value of the asset. e. Goodwill is the excess of the purchase price of an aquired business over the fair market value of the separately identifiable assets less liabilities of the aquired business. Goodwill is deemed to have indefinite life and subject to impairment. UGBA102A Topic06 Practice Questions 1
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Question 2. In a short sentence, explain the difference between the following concepts: A capital expenditure is an amount spent to increase the productive life, the operating efficiency, or the capacity of an asset and qualifies as an asset whereas a revenue expenditure is an amount spent to maintain the productive capacity of an asset during a given accounting period and is treated as an expense. Both depreciation and amortization represent the systematic allocation of anticipated losses due to the decline in value of long-term assets. However,
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UCBUGBA102ATopic06PracticeQuestionsSolns - Topic06...

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