docslide.us_instructors-manual-chapter-9 - Chapter 09 Plant...

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Chapter 09 - Plant and Intangible Assets 9 PLANT AND INTANGIBLE ASSETS Chapter Summary The material on plant assets is organized into sections for tangible assets, intangible assets, and natural resources. For all three categories of plant assets the chapter focuses on three accountable events: (1) acquisition, (2) allocation of the acquisition cost to expense over the asset’s lifetime, and (3) sale or disposal. In determining the cost of a plant asset, careful attention is paid to distinguishing between capital and revenue expenditures. Special considerations surrounding the acquisition of land, existing structures, and land improvements are briefly discussed, as is the allocation of lump-sum purchases. A considerable amount of attention is paid to depreciation. Before discussing various methods of calculating periodic depreciation, a conceptual introduction explains that depreciation is simply the process of allocating a recorded cost and does not represent an accounting effort to establish the market value of a plant asset. At this point in the course, the student is already aware of the calculation of straight-line depreciation and the adjusting entry to record the expense. Accounting for residual values and dealing with fractional periods completes the discussion from prior chapters. Accelerated depreciation is introduced using the declining balance method for illustration. Accounting for the disposal of plant assets requires a journal entry to remove both the original recorded cost of the asset and the accumulated depreciation. The chapter deals with sales for cash, trade- ins, and scrapping worthless equipment. The calculation of gain or loss is illustrated only for financial statement purposes. Trade-in transactions are treated only briefly at an introductory level. A wide variety of intangible assets including trademarks, patents, copyrights, and franchises is discussed, but only goodwill is treated in detail. The difficulty of objectively estimating goodwill is explained as the reason that this asset is only recorded when purchased. The brief discussion of natural resources parallels that for equipment. We emphasize that depletion is first recorded as inventory and charged to expense as the material is sold. Learning Objectives 1. Determine the cost of plant assets. 2. Distinguish between capital expenditures and revenue expenditures . 3. Compute depreciation by the straight-line and declining-balance methods. 4. Account for depreciation using methods other than straight-line or declining-balance. 5. Account for the disposal of plant assets. 6. Explain the nature of intangible assets, including goodwill. 7. Account for the depletion of natural resource. 8. Explain the cash effects of transactions involving plant assets.
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