Chapter 10 331

Chapter 10 331 - Lecture Notes for Chapter 10 (ACCT 331)...

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Lecture Notes for Chapter 10 (ACCT 331) Operational Assets: Acquisition and Disposition Operating assets are long term revenue generating assets. Types of Operational Assets Fixed assets (land, building, machinery, and natural resources such as oil reserves, mineral deposits etc.). They are used in operations and not held for resale They are long term and are subject to depreciation (except land) They are tangible (have physical substance) Intangible Assets: (goodwill, patents, copyrights, trademarks, franchises): They represent exclusive rights that provide benefits to the owner Intangible assets with finite useful lives (e.g., patents) are amortized; intangible assets with indefinite useful lives (e.g., goodwill) are not amortized. They lack physical substance Initial cost: The initial cost of an asset includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use (e.g., freight costs, installation costs, sales taxes, title fees, etc.). These costs are capitalized. Suppose Central Machine Tools purchased an industrial lathe to be used in its manufacturing process. The purchase price was $62,000. Central paid a freight company $1,000 to transport the machine to its plant location plus $300 shipping insurance. In addition, the machine had to be installed and mounted on a special platform built specifically for the machine at a cost of $1,200. After installation, several trial runs were made to ensure proper operation. The cost of these trials including wasted materials was $600. At what amount should Central capitalize the lathe? Purchase price $62,000 Freight and handling 1,000 Insurance during shipping 300 Special foundation 1,200 Trial runs 600 $65,100 1
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Land The cost of Land includes: 1 Purchase price 2 closing costs such as title fees, and attorney’s fees, transfer fees etc 3 real estate brokers’ commissions 4 accrued property taxes and other liens on the land assumed by the purchaser. 5. Cost of making the land ready for use. All necessary costs incurred in making land ready for its intended use (grading, filling, draining, removal of old building) are debited to the Land account. Land is never depreciated. Land Improvements The cost of land improvements (with limited life) such as: driveways, walkways, parking lots, fencing, and lighting are capitalized into “Land Improvements” and depreciated over time. Buildings The cost of buildings includes all necessary expenditures relating to the purchase or construction of a building. When a building is purchased, such costs include the purchase price, closing costs, and real estate broker’s commission. Costs to make the building ready for its intended use consist of expenditures for
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This note was uploaded on 04/12/2009 for the course ACCT 331 taught by Professor V during the Spring '09 term at George Mason.

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Chapter 10 331 - Lecture Notes for Chapter 10 (ACCT 331)...

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