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Chapter 9 Notes

Chapter 9 Notes - Chapter 9 Reporting and Analyzing...

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Chapter 9 Reporting and Analyzing Long-Lived Assets Cost of Plant Assets o Plant assets are resources that o Have physical substance o Are used in the operations of a business o Are not intended for sale to customers o Deliver service potential over their useful lives (except land) o Plant assets are recorded at cost o Cost consists of all expenditures necessary to acquire the asset and make it ready for its intended use Types of Expenditures o Revenue Expenditure – immediately charged against revenue as an expense o Capital Expenditure – capitalized as an asset, not immediately expensed Plant Assets: Land o Cost of land includes o Cash price, closing costs, brokers’ commissions, accrued property taxes, etc. o Can also include costs to raze a building, drain and fill the land, proceeds from sale of salvaged materials are deducted from the cost Cost of Land Improvements o All expenditures necessary to make the improvements ready for their intended use: o Drive ways o Parking lots o Fences o Underground sprinklers Buildings o All necessary expenditures relating to the purchase or construction of a building o When a building is purchased such costs include the: o Purchase price o Closing costs (attorney’s fees, title insurance) o Real estate broker’s commissions o If a building is purchased, but needs to be readied for its intended use , cost includes: o Expenditures for remodeling rooms or offices o Replacing or repairing Roof Floors
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Electrical wiring Plumbing o When a building is constructed, its cost consists of : o The contract price o Architect’s fees o Building permits o Excavation cost o Interest costs during construction Equipment o Cost of equipment includes: o Purchase price o Sales tax o Freight charges and insurance during transit paid by the purchaser o Expenditures required in assembling o Installing and testing the unit o Two criteria apply in determining the cost of equipment: o The frequency of cost – one time or recurring o The benefit period – the life of the asset or 1 year Leasing versus Purchasing an Asset o Advantages of leasing include: o Reduced risk of obsolescence o Little of no down payment o Shared tax advantages o Assets and liabilities may not be recorded Depreciation o The process of allocating to expense the cost of a plant asset over its useful life in a rational and systematic manner o Depreciated is not
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Chapter 9 Notes - Chapter 9 Reporting and Analyzing...

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