Accounting Information Assignment 1

In: Business and Management

Submitted By clavant
Words 525
Pages 3
Candice Lavant

CHAPTER10: Acquisition and Disposition of Property, Plant, and Equipment

I. Property, Plant and Equipment
Property, Plant, and Equipment (Fixed Asset or Plant Asset)
 Historical cost principle
 Include any “normal” or “routine” expenditure to get an asset in place and functioning.

A. Whether you buy it, build it, plan to keep it and operate it or plan to sell it:
 Capitalize all costs necessary to make the asset ready for its intended use
 Anything you get back is a reduction
 Capitalize indirect costs if you can make the link to the asset
 Capitalize costs associated with owning it during the construction period= interest and property taxes
 Never on books for more than its recoverable value.
 Generally record at the fair value of what you give up.
*Remember that if payment occurs over time, fairvalue=present value!
 Subsequent costs only capitalized if they generate additional future benefit. - otherwise expense as repairs & maintenance

II. Property, Plant and Equipment A. Cost of Land:
 Again, usual and routine costs to get the land fit for use:
 Purchases price, closing, attorney’s fees.
 Cost to demolish existing structure, cleanup.
 Proceeds from salvage are an offset to the cost.
 Cost to grade land.
 Assumption of current mortgage, debts.
• Land improvements with separate lives depreciated separately.
• Land itself is NOT depreciable
 Special public assessments (sidewalks, etc.) included.
 Land improvements with an indefinite life
 Land held for speculation is classified as an investment

B. Cost of Buildings:
 Outflows for cost of buildings or cost of construction.
 Same rule as before applies: anything to get an asset in place and functioning is part of the cost of the building.

C. Cost of Equipment:
 Machinery, office equipment, furniture and fixtures.
 Historical cost = Purchase price +…...

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