chapter10_notes

chapter10_notes - Chapter 10 Acquisition of Property, Plant...

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Chapter 10 – Acquisition of Property, Plant and Equipment 1 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 amortization 3. Possess physical substance Acquisition Cost: Historical cost is the basis for determining cost Historical cost is: the asset’s cash or cash equivalent price, and the cost of getting the asset ready for its intended use Costs incurred after acquisition are: added to the asset’s cost, if they increase future service potential, or expensed, if they do not add to the asset’s original service potential Cost of Land: Land costs include: 1. Purchase price 2. Closing costs (title, legal, and recording fees) 3. Costs of getting land ready for use (such as removal of old building, clearing, grading, filling and draining) 4. Assumption of liens or encumbrances 5. Additional improvements with an indefinite life Sale of salvaged materials reduces cost of land Special assessments for local improvements (e.g., pavement) are part of land cost Land Improvements: Permanent improvements to the land such as landscaping are added to the Land account Improvements with limited lives (such as driveways, walkways, fences, and parking lots) are recorded in a separate Land Improvements account These costs are separated from Land as they are amortized over their estimated useful lives Cost of Buildings: Building costs include all costs directly related to buying or constructing the building More specifically, cost of buildings include: 1. Cost of materials, labour, and overhead 2. Professional fees and building permits The removal of an old building previously owned and used increases loss on the disposal of the old building If land is purchased with an old building on it, any demolition costs less salvage value is charged to Land 1 GST is not expensed because companies get it back – or they don’t pay it at all
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Leasehold Improvements: In long-term lease contracts, the lessee may pay for improvements on the leased property Examples: construction of building on leased land, improvements to leased building These costs are recorded in a separate account called Leasehold Improvements Leasehold improvements are amortized over the lesser of the remaining lease life and the useful life Cost of Equipment: Includes delivery equipment, office equipment, factory equipment, machinery, and furniture Cost of equipment includes all necessary and reasonable costs incurred to get asset ready for its intended use Includes: Purchase price Freight and handling charges Insurance while in transit Costs of special foundation, assembly and installation Cost of trial runs Asset Retirement Costs:
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This note was uploaded on 11/16/2009 for the course BBA ADMN1107 taught by Professor M.o'gay during the Fall '08 term at Laurentian.

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chapter10_notes - Chapter 10 Acquisition of Property, Plant...

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