Acc011_05_AcquisitionOfProperty_Plant_Equipment

Acc011_05_AcquisitionOfProperty_Plant_Equipment -...

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Acquisition of Property, Plant and Equipment
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Capitalized Cost of  Asset • Generally  capitalize  all  costs  necessary  to  acquire  the  asset  and  put  in  into  operating condition.
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Asset Basis Recorded at historical cost.  Price of  the asset, plus all costs of getting  it ready for use.  Include Purchase price, or cost of  construction (materials, labor and pro  rata share of overhead); do not  include the internal costs of  intangible assets, for example  Freight or Delivery Charges Costs incurred in getting asset ready  for use, examples include demolishing  old building so that new building may  be built and installation costs for  equipment. Training on equipment Fees; Attorneys Fees, Brokers 
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Asset Basis • Also  include  any  costs incurred  after  acquisition, such  as  additions, improvements,  or  replacements that  provide  future  service potential.
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Property acquired  through • Issuance  of  debt  (deferred  payment contracts) • Issuance of stock • Donation
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Deferred Payment  Contracts • Assets  purchased  on  long-term credit  contracts  should  be accounted for at  – their fair value or  – the fair value of the liability  on  the  date  of  the  transaction, whichever is more reliable.   • If  neither  is  determinable,  the asset  should  be  recorded  at  the present value of the payments.    • If  no  interest  rate  is  stated  or if  the  stated  rate  is
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Property acquired  through the issuance  of stock. Record  the  exchange  at  the  fair value of the –  asset acquired or  – the stock issued,  whichever is more reliable.  
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Example • Generous  Motors  gives  Simple Simon  300  shares  of  stock  in exchange  for  an  innovative new  patent.    The  current market  value  of  the  stock  is $30  per  share.  What  journal entry  should  we  make  to record the acquisition of the patent?
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Property acquired  through Donation • Assets  acquired  through  donation  should  be  recorded  at their fair values.
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Acc011_05_AcquisitionOfProperty_Plant_Equipment -...

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