ch10 - Chapter 10: Acquisition and Disposition of Property,...

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  Chapter 10 1 Chapter 10: Acquisition and Disposition of  Property, Plant, and Equipment AIM 3331-0U1 Summer 2009 Xinyi Lu
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  Chapter 10 2 Objective 1. 2. 3. Understand accounting issues related to acquiring and  4. Describe the accounting treatment for costs subsequent  to acquisition. 5. Describe the accounting treatment for the disposal of  PP&E.
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  Chapter 10 3 Property, Plant, and  Equipment ( ) Property, plant, and equipment includes land,  buildings, and equipment (machinery,  furniture, tools).  These asset, also referred to as fixed asset or  plant assets, are an important part of the  operations of most business organizations.  They provide the major means of support for  the production and/or distribution of a  company’s product or service.
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  Chapter 10 4 Major Characteristics of  distinguish them from other assets owned by a  business enterprise: 1. “Used in operations” and not for resale. 2. Long-term in nature and usually depreciated  (except for land*). 3. Possess physical substance. Note: Land is depreciated only if a material decrease in  value occurs, e.g. a loss in fertility of agricultural  land because of poor crop rotation, drought, or  erosion. 
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  Chapter 10 5 Acquisition and Valuation of   APB Opinion No. 6   states, “property, plant, and  equipment should not be written up to reflect appraisal,  market, or current values which are above cost.” historical cost. The reasons are:  1.  At acquisition, cost reflects fair value. 2.  Historical cost is reliable. 3.  Companies should not anticipate gains and losses but  should recognize gains and losses only when the asset  is sold.
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  Chapter 10 6 Acquisition and Valuation of  Initially, companies consider the cash or cash  equivalent price of obtaining the asset and bringing it  to the location and condition necessary for its  intended use as part of the asset’s cost. After the asset’s acquisition, additional cost incurred  to achieve greater future benefits will be added to the  asset’s cost. During the useful life of the assets, companies  allocate these costs to each period through  depreciation.  
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  Chapter 10 7 Acquisition Cost of Land Cost of Land  includes all expenditures made to  acquire the land and prepare it for use.
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ch10 - Chapter 10: Acquisition and Disposition of Property,...

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