ch09 - CHAPTER 9 Reporting and Analyzing Long-Lived Assets...

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CHAPTER 9 Reporting and Analyzing Long-Lived Assets CHAPTER OVERVIEW In this chapter you will learn how to account for long-lived assets, such as buildings and machinery. You will learn about the amounts at which they are recorded in the accounting records and how to allocate their cost to expense using periodic depreciation. You will learn how to dispose of plant assets and methods used by companies for evaluating their use. You will also learn about intangible assets, long-lived assets that have no physical substance. Finally, you will learn how all these assets are reported on the balance sheet. REVIEW OF SPECIFIC STUDY OBJECTIVES Plant assets are resources that have physical substance, are used in the operations of a business, and are not intended for sale to customers . Other names for these assets are property, plant, and equipment; plant and equipment; and fixed assets. Of the following four classes of these assets, land is the only which does not decline in value: 1. Land 2. Land improvements, such as driveways and parking lots 3. Buildings, such as offices and factories 4. Equipment, such as office furniture, cash registers, and delivery equipment. SO1. Describe how the cost principle applies to plant assets. ¿ Plant assets are recorded at cost , which consists of all expenditures necessary to acquire the asset and make it ready for its intended use .
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Kimmel Accounting: Tools for Business Decision Making 9-2 ¿ Revenue expenditures are costs expensed immediately, not included in the cost of a plant asset . ¿ Capital expenditures are those costs included in a plant asset account, not expensed immediately . ¿ Cost is measured by the cash paid in a cash transaction or by the cash equivalent price paid when noncash assets are used in payment . The cash equivalent price is equal to the fair market value of the asset given up or the fair market value of the asset received, whichever is more clearly determinable . ¿ The cost of land includes the cash purchase price, closing costs, real estate brokers' commissions, and accrued property taxes and other liens assumed by the purchaser . All costs incurred in making land ready for its intended use increase the Land account: clearing, draining, filling, grading, and razing old buildings are included. ¿ The cost of land improvements includes all expenditures necessary to make the improvements ready for their intended use . For example, building a parking lot includes paving, fencing, and lighting. ¿ The cost of buildings includes all expenditures relating to the purchase or construction of a building . If a building is purchased , then the costs include the purchase price, closing costs, and brokers' commissions, as well as remodeling costs.
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This note was uploaded on 08/02/2009 for the course BUAD 305 taught by Professor Davila during the Fall '07 term at USC.

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ch09 - CHAPTER 9 Reporting and Analyzing Long-Lived Assets...

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