ADMS 3585 Chapter 10 Study Sheet.docx

ADMS 3585 Chapter 10 Study Sheet.docx - ADMS 3585 Chapter...

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ADMS 3585 Chapter 10 Study Sheet Property, Plant, and Equipment Also known as tangible capital assets, plant assets, and fixed assets Examples: land, building, equipment, and natural resource properties Major characteristics include: 1. Acquired and held for use in operations and not for resale 2. Long-term in nature and usually subject to depreciation 3. Possess physical substance (tangible) Cost Elements Capitalized cost of property, plant, and equipment includes all expenditures needed to: acquire the asset (purchase price, net of discounts and rebates) bring it to its location and to state where it is ready for use (including delivery, site preparation, installation, assembly, professional fees, etc) discharge obligations associated with asset’s eventual disposal (e.g. site restoration) IFRS and ASPE share the above approach, but sometimes differ in specific application Self-Constructed Assets These are assets constructed by the business for use in operations The cost of self-constructed assets includes: Direct materials, Direct labour, Directly attributable overhead (e.g. variable manufacturing overhead) Dismantling and Restoration Costs Companies are often responsible for costs associated with dismantling the asset, removing it, and restoring the site at the end of its useful life These costs are often referred to as asset retirement costs and meet the recognition criteria for capitalization as part of PP&E asset costs IFRS and ASPE share the above approach, but sometimes differ in specific application Cash Discounts When cash discounts are offered on the purchase of plant assets, the Net-of- Discount Method is the preferred method The asset cost is reduced by the discount amount even if discount is not taken Deferred Payment Contracts Assets, purchased through long-term credit, are recorded at the present value of the consideration exchanged When no interest rate is stated, the cash price of the purchased asset is used to determine imputed interest rate Interest expense is recognized over the term of the deferred payment contract
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Lump-Sum Purchases
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  • Spring '10
  • Sandra
  • Depreciation, Generally Accepted Accounting Principles, ADMS 3585

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