ch. 9 - Financial Accounting - Chapter 9 1 Chapter 9 -...

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Unformatted text preview: Financial Accounting - Chapter 9 1 Chapter 9 - Study Objectives After studying this chapter, you should be able to: 1. Describe how the cost principle applies to plant assets. 1. Explain the concept of depreciation. 1. Compute periodic depreciation using the straight-line method, and contrast its expense pattern with those of other methods. 1. Describe the procedure for revising periodic depreciation. 1. Explain how to account for the disposal of plant assets. 1. Describe methods for evaluating the use of plant assets. 1. Identify the basic issues related to reporting intangible assets. 1. Indicate how long-lived assets are reported on the balance sheet. Financial Accounting - Chapter 9 2 Plant Assets AKA Property, Plant and Equipment (PPE) and it includes: Assets with more than 1 year of life, and Assets used in the business, and Assets not intended for resale. Tangible Plant Assets are Land, Buildings and Equipment. Except for Land, these assets decline in service potential over their useful lives. These assets are expensed through depreciation. Note: Land is not depreciated but any improvements (i.e., parking lot, paving, fencing) costs to the land are debited to a Land Improvement account and are depreciated. Financial Accounting - Chapter 9 3 2 Major Problems with PPE 1. What to record as Cost. 1. How to estimate how much of the asset has been used up each year, and how it should be expensed. What to record as Cost. Cost = are recorded at cost in accordance with the cost principle and it consists of all the cost to acquire and get the asset ready for its first use. We call this capitalized cost because it is the amount of capital we add to the companys assets. Financial Accounting - Chapter 9 4 What to record as Cost The following are some examples of things added-in to get total capitalized costs: Net purchase price, includes sales tax Commissions on purchase Closing costs Transportation Any other cost needed to get it ready for use (e.g., demolition of an old building, installation or setup charges). Journal entry to record purchase: PPE $ (Total Capitalized Cost) Cash (or Payable) $ Financial Accounting - Chapter 9 5 Special Problems in Determining Capitalized Cost 1. Purchase on Account - if you receive purchase terms (i.e., 2/10, net/30) you must record the PPE at net....
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This note was uploaded on 04/14/2008 for the course ACCT 201 taught by Professor Romney during the Fall '06 term at San Diego.

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ch. 9 - Financial Accounting - Chapter 9 1 Chapter 9 -...

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