PPR_Ch10 - INTERMEDIATE F I F T E E N T H E D I T I O N...

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10-1 Prepared by Coby Harmon Coby Harmon University of California, Santa Barbara University of California, Santa Barbara Intermediat Intermediat e e Accounting Accounting Intermediat Intermediat e e Accounting Accounting Prepared by Prepared by Coby Harmon Coby Harmon University of California, Santa Barbara University of California, Santa Barbara Westmont College Westmont College INTERMEDIATE ACCOUNTING F I F T E E N T H E D I T I O N Prepared by Coby Harmon University of California, Santa Barbara Westmont College ki e so w e ygandt warfi e ld team for success
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10-2 Used in operations ” and not for resale. Long-term in nature and usually depreciated. Possess physical substance . Property, plant, and equipment are assets of a durable nature. Other terms commonly used are plant assets and fixed assets . Property, Plant, and Equipment LO 1 Describe property, plant, and equipment. Includes: Land, Building structures (offices, factories, warehouses) , and Equipment (machinery, furniture, tools).
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10-3 Historical cost measures the cash or cash equivalent price of obtaining the asset and bringing it to the location and condition necessary for its intended use. LO 2 Identify the costs to include in initial valuation of property, plant, and equipment. Property, Plant, and Equipment Acquisition of Property, Plant, and Equipment Main reasons for historical cost valuation: Historical cost is reliable. Companies should not anticipate gains and losses but should recognize gains and losses only when the asset is sold.
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10-4 Includes all expenditures to acquire land and ready it for use. Costs typically include: Cost of Land LO 2 (1) purchase price; (2) closing costs, such as title to the land, attorney’s fees, and recording fees; (3) costs of grading, filling, draining, and clearing; (4) assumption of any liens, mortgages, or encumbrances on the property; and (5) additional land improvements that have an indefinite life. Acquisition of PP&E
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10-5 Improvements with limited lives , such as private driveways, walks, fences, and parking lots, are recorded as Land Improvements and depreciated. Land acquired and held for speculation is classified as an investment . Land held by a real estate concern for resale should be classified as inventory . Acquisition of PP&E LO 2 Identify the costs to include in initial valuation of property, plant, and equipment. Cost of Land
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10-6 Includes all expenditures related directly to acquisition or construction. Costs include: materials, labor, and overhead costs incurred during construction and professional fees and building permits. Cost of Buildings LO 2 Identify the costs to include in initial valuation of property, plant, and equipment. Acquisition of PP&E
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10-7 Acquisition of PP&E Cost of Equipment Include all expenditures incurred in acquiring the equipment and preparing it for use. Costs include: purchase price, freight and handling charges, insurance on the equipment while in transit, cost of special foundations if required,
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