Slide 1Chapter 10: Plant Assets, Natural Resources, and IntangiblesSummary: 1. Explain the cost principle for computing the cost of plant assets:- Plant assets are set apart from other tangible assets by two important features: use in operations and useful lives longer than one period. Plant assets are recorded at cost when purchased. Cost includes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use. The cost of a lump-sum purchase is allocated among its individuals. 2. Explain depreciation for partial years and changes in estimates:- Partial year depreciation is often required because assets are bought and sold throughout the year. Depreciation is revised when changes in estimates such as salvage value and useful life occur. If the useful life of a plant asset changes, for instance, the remaining cost to be depreciated is spread over the remaining (revised) useful life of the asset. 3. Distinguish between revenue and capital expenditures, and account for them: - Revenue expenditures expire in the current period and are debited to expense accounts and matched with current revenues. Ordinary repairs are an example of revenue expenditures. Capital expenditures benefit future periods and are debitedto asset accounts. Example of capital expenditures are extraordinary repairs and betterments. 4. Compute total asset turnover and apply it to analyze a company’s use of assets. - Total asset turnover measures a company’s ability to use its assets to generate sales. It is defined as 2net sales divided by average total assets. While all companies desire a high total asset turnover, it must be interpreted in comparison with those for prior years and its competitors. 5. Compute and record depreciation using the straight-line, units-of-production, and declining-balance methods.- Depreciation is the process of allocating to expense the cost of a plant asset over the accounting periods that benefit from its use. Depreciation does not measure the decline in a plant asset’s market value or its physical deterioration. Three factors determine depreciation: cost, salvage value, and useful life. Salvage value is an estimate of the asset’s value at the end of its benefit period. Useful (service) life is the length of time an asset is productively used. The straight-line method divides cost less salvage value by the asset’s useful life to determine depreciation expense per period. The units-of-production method divides cost less salvage value by the estimated number of units the asset will produce over its life to determine depreciation per unit. The declining-balance method multiplies the asset’s beginning-of-period book value by a factor that is often double the straight-line rate. 6. Account for asset disposal through discarding or selling an asset:- When a plant asset is discarded or sold, its cost and accumulated depreciation are removed from the accounts. Any cash proceeds from discarding or selling an assetare recorded and compared to the asset’s book value to determine gain or loss. 7. Account for natural resource assets and their depreciation:- The cost of a natural resource is recorded in a noncurrent asset account. Depletionof a natural resource is recorded by allocating its cost to depletion expense using the units-of-production method. Depletion is credited to an Accumulated Depletion account. 8. Account for intangible assets: - An intangible asset is recorded at the cost incurred to purchase it. The cost of an intangible asset with a definite useful life is allocated to expense using the straight-line method and is called amortization. Goodwill and intangible assetswith an indefinite useful life are not amortized – they are annually tested for impairment. Intangible assets include patents, copyright, leaseholds, goodwill andtrademarks. 9. Account for asset exchanges: - For an asset exchange with commercial substance, a gain or loss is recorded basedon the difference between the book value of the asset given up and the market value of the asset received. For an asset exchange without commercial substance, no gain or loss is recorded, and the asset received is recorded based on the book value of the asset given up.Slide 2Plant assets are tangible assets that are actively used in the operations of the entity. We fully expect these assets, sometimes referred to as property, plant, and equipment, to benefit more than one accounting period. Plant assets are set apart from other assets for two important features: 1. Plant assets are used in operations. 2. Plant assets have useful lives extending over more than one accounting period.Slide 3The four main issues in accounting for plant assets are shown on this screen: (1) computing the costs of plant assets, (2) allocating the costs of most plant assets (less any salvage amounts) against revenues for the periods they benefit, (3) accounting for expenditures such as repairs and improvements to plant assets, and (4) recording the disposal of plant assets.Slide 4The cost of a plant asset includes the purchase price as well as all costs necessary to get the asset in place and ready for its intended use. We record the purchase price net of any cash discounts available. We will add freight, unpacking, assembling, installing, and testing costs to the net invoice price to arrive at the final cost.Finance charges are not included in the cost of an asset. If we elect to finance the purchase overa period of time, the interest cost is charged as an expense when incurred.Slide 5Land is not a depreciable plant asset. In addition to the purchase price, there are many costs generally incurred in connection with the acquisition. Many of these costs are related to obtaining legal title to the land.Slide 6Land improvements are depreciated over their useful life. Land improvements include parking lots, driveways, fences, sidewalks, landscaping, and any outdoor lighting systems.While the costs of these improvements increase the usefulness of the land, they are charged to a separate Land Improvement account so that their costs can be allocated to the periods they benefit.Slide 7Whether we purchase or construct a building, the cost should include the purchase price plus any attorney fees or title fees. If we construct the building, the cost will include all the necessaryconstruction costs as well as the costs we have just mentioned.Slide 8The costs of machinery and equipment consist of all costs