Chapter 9: Reporting and Analyzing Long-Lived AssetsChapter 9: Reporting and Analyzing Long-Lived Assets- Plant Assets are resources that have:o Physical substance (a definite size and shape).o Are used in the operations of a business. o Are not intended for sale to customers.o Are expected to provide service to the company for a number of years, except for land. o- Determining the Cost of Plant Assets:o Historical Cost Principle: requires that companies record plant assets at cost. Cost consists of all expenditures necessary to acquire an asset and make it ready for its intended use.o Revenue Expenditure: costs incurred to acquire a plant asset that are expensed immediately.o Capital Expenditure: costs included in a plant asset account.o Cost: cash paid in a cash transaction or the cash equivalent price paid. Cash equivalent price is the fair value of the asset given up or fair value of the asset received, whichever is more clearly determinable. - Land: all necessary costs incurred in making land ready for its intended use increase (debit) the Land account. o Costs typically include: Cash purchase price. Closing costs such as title and attorney’s fees. Real estate brokers commissions. Accrued property taxes and other liens on the land assumed by the purchaser.- Land Improvements: includes all expenditures necessary to make the improvements ready for their intended use. Examples: driveways, parking lots, fences, landscaping, and underground sprinklers. Limited useful lives. Expense (depreciate) the cost of land improvements over their usefullives. - Buildings: includes all costs related directly to purchase or construction.o Purchase costs: Purchase price, closing costs (attorney’s fees, title insurance, etc.) and real estate broker’s commission. Remodeling and replacing or repairing the roof, floors, electrical wiring, and plumbing. 2o Construction costs: Contract price plus payments for architect’s fees, building permits, and excavation costs.- Equipment: includes all costs incurred in acquiring the equipment and preparing it for use.o Costs typically include: Cash purchase price. Sales taxes. Freight charges. Insurance during transit paid by the purchaser. Expenditures required in assembling, installing, and testing the unit. - Accounting for Plant Assets:o Depreciation: process of allocating to expense the cost of a plant assetover its useful (service) life in a rational and systematic manner. Process of cost allocation, not asset valuation. Applies to land improvements, buildings, and equipment, not land. Depreciable, because the revenue-producing ability of asset will decline over the asset’s useful life.
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