Chapter 7: Plant Assets and Intangibles
Types of Assets:
aka fixed assets, long lived and tangible, ex. Land, buildings, equipment. Expense associated with them is
. Land is not expensed over time. Reported as Property, Plant and Equipment on b/s.
carry special rights, no physical form, ex. Patents, copyrights, trademarks and goodwill, accounting for
them is similar to that of plant assets.
*unless otherwise stated, use GAAP methods
Measuring the Cost of a Plant Asset
The cost of any asset is the sum of all the costs incurred to bring the asset to its intended use
It includes purchase price,
plus taxes, commissions, and other amounts paid. These costs vary by asset.
- cost includes purchase price (cash + any note payable), brokerage commission, survey fees, legal
property tax that purchaser pays, expenditures for grading/clearing land, removing unwanted buildings.
*cost of land does not include cost of fencing, paving, security or lighting, these are called
can be depreciated.
Example= land for $300,000 on note payable + $24,000 for other (above)
Buildings, Machinery, and Equipment
of construction includes architectural fees, building permits,
contractor’s charges, payments for material, labor and overhead. If constructed by company, includes
interest on money borrowed to do so. Purchase a building (new/old)- cost includes price, brokerage
commission, sales or other tax, expenditures to repair/renovate for intended purpose.
purchase price, transportation costs, insurance in transit, sales/other tax, purchase commission, installation,
and expenditures to test it, special platforms.
*after in use, insurance, maintenance and taxes recorded as expenses, not asset’s cost.
Land Improvements and Leasehold Improvements-
although land improvements are located on the land,
they are subject to decay and cost is then depreciated, leasehold improvements (such as painting a truck that
is leased), depreciated over term of lease. This is called
Sum (or Basket)) Purchases of Asset-
businesses often purchase several assets as a group for single
lump amount. Total cost must be divided among the assets according to their relative sales/market values.
This is called
. Buy land and building for 2,800,000, lands market is 300,000 and building’s market is 2,700,000. This equals
3,000,000, making land 10 percent and building 90 percent. Determine cost of asset.
* total assets do not change.
Capital Expenditure vs. Immediate Expense