School of Business Department of Accounting Financial Accounting BACC200 Chapter 10 Part 1 Plant Assets Natural Resources and Intangibles BACC200 Chapter 10 PLANT ASSETS Plant Assets Characteristics Used in the operations Not intended for sale Long life Tangible Plant Assets Categories Land Land Improvements Building Equipment COST OF PLANT ASSETS Plant assets are recorded according to the cost principle which means that assets are recorded at their original cost and at the time of acquiring The cost consists of all expenditures necessary to acquire the asset and make it ready for use Plant assets normal balance is DEBIT they increase by debit and decrease by credit Plant Asset Dr Normal Balance Cr Date Account Title and Explanation Ref Plant Asset Debit X Credit X Cash or Payable Cost Cost Plant Assets Categories Included in the Cost Cash purchase price Closing costs title and attorney s fees Broker s commission Accrued property taxes Land Clearing draining filling and grading of an empty land If land has building that must be removed Add demolition and removal costs Deduct proceeds from selling salvaged materials Land Improvements Sidewalks Parking lots Underground sprinklers Driveways Fences Landscaping Lighting Plant Assets Categories Included in the Cost Building Purchased Purchase price Closing costs Broker s commission Remodeling and repair costs Building Constructed Building Contractor s fees Construction materials costs Interest payments during construction period Architect s fees Building permits Excavation costs Purchase price Sales taxes Freight charges Equipment Insurance during transit Expenditures for assembling installing and testing EXERCISE Design Me purchased a land from Bina Real Estate on February 1 2017 Instructions Put an X in the appropriate box to indicate whether the items are considered as land or land improvements then prepare the appropriate journal entries Item Land Land Improvements Accrued property taxes 2 250 Attorney s fees 3 750 Cash purchase price 39 000 Demolition costs of worn out warehouse 7 000 Income from selling salvaged materials 2 000 Driveway 3 700 Fences 6 000 Landscaping 10 000 Parking lot 6 500 Sidewalks 4 000 Underground sprinklers 2 300 X X X X X X X X X X X Date Account Title and Explanation Ref Debit Credit Land Cash Feb 1 2017 Land Improvement Cash Feb 1 2017 50 000 50 000 32 500 32 500 EXERCISE Design Me is constructing a building on the land purchased from Butna Real Estate on February 1 2017 Instructions Put an X in the appropriate box to indicate whether the items are included or not included in the cost of the building then prepare all the necessary journal entries assuming that the building was constructed on March 31 and all costs were paid in cash Item Included Not Included Architect fees 20 000 Building permit 10 000 Construction material 80 000 Contractors fees 40 000 Demolition costs of worn out warehouse 7 000 Interest payments after finishing construction 5 000 Painting the logo on the building 7 500 X X X X X X X Date Account Title and Explanation Ref Debit Credit March 31 2017 Building Cash March 31 2017 Land Cash March 31 2017 Interest Expense Cash March 31 2017 Painting Expense Cash 150 00 0 7 000 5 000 7 500 150 00 0 7 000 5 000 7 500 EXERCISE Design Me purchases a truck on January 1 Instructions Put an X in the appropriate box to indicate whether the items are included or not included in the cost of the truck then prepare all the necessary journal entries assuming all costs were paid in cash Item Included Not Included Accident Insurance for the first year 4 000 Cash purchase price including taxes 14 000 Freight charges 2 000 Freight Insurance during transit 500 Heavy vehicles driving license 2 350 Testing fees 1 500 X X X X X X Date Account Title and Explanation Ref Debit Credit Jan 1 2017 Jan 1 2017 Jan 1 2017 Equipment Cash Prepaid Insurance Cash License Expense Cash 18 000 4 000 2 350 18 000 4 000 2 350