Ch08 - PPE - Chapter 8 Property, Plant &...

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Unformatted text preview: Chapter 8 Property, Plant & Equipment; Natural Resources; and Intangibles Overview Acquisition cost Revenue vs. capital expenditures Depreciation methods Disposal or sale of PPE Natural Resources Intangible assets Asset Impairment 8-1 Definition 8-2 Useful life of more than one year Used in the operation of a business Not intended for resale Examples for Disney? Land Assets subject to depreciation Buildings and equipment Furniture and fixtures Natural resource assets subject to depletion Mineral deposits and timber Types of Long-Lived Assets Value represented by rights that produce benefits (e.g. patents) Subject to amortization Tangible Physical Substance Intangible No Physical Substance 8-3 Tangible Assets 8-4 Acquisition Cost 8-5 Acquisition Cost General 1. Recorded at the cost necessary to acquire the asset and prepare it for its intended use: purchase price sales taxes transportation charges installation costs 2. Acquisition cost does not include financing charges. 8-6 Acquisition Cost Land Should land be depreciated? 8-7 Price paid for land + Real estate commissions + Closing costs (e.g. attorneys fees) + Cost of preparing the land for use (e.g. clearing) + Cost of tearing down existing structures = Cost of land Acquisition Cost Example Land 8-8 How should the following expenditures that Disney made to build a new ride be classified? Expenditure Amount Land Land Improvements Building Purchase of land 80,000 80,000 Removal of old building 10,000 10,000 Driveway & parking lot 20,000 20,000 Real estate broker's fee 2,000 2,000 Architect's fee - design 5,000 5,000 Title insurance 3,000 3,000 Landscaping (trees, etc.) 4,000 4,000 TOTAL 99,000 20,000 5,000 Acquisition Cost Buildings Purchased 8-9 Price paid for building + Closing costs + Costs to update or remodel the facilities (e.g. install shelves) + Any other costs to get the building operational (e.g. repair or replace a roof) = Cost of building Acquisition Cost Buildings Constructed 8-10 Architects fees + Construction costs (e.g. bricks, labor) + Interest on debt incurred during the construction = Cost of building Acquisition Cost Equipment Price paid for equipment + Freight for delivery of equipment + Insurance in transit + Costs to put equipment in service (e.g. testing) = Cost of equipment 8-11 Acquisition Cost Equipment Example On January 1, 2005, Disney incurred the following to purchase a truck: Purchase price $ 11,000 Sales taxes 1,000 Shipping and insurance 400 Painting and lettering 600 $ 13,000 They paid $3,000 cash and signed a note for the remaining balance. Prepare the journal entry to record the purchase....
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This note was uploaded on 11/24/2009 for the course UGBA 102A taught by Professor Udpa during the Fall '07 term at University of California, Berkeley.

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Ch08 - PPE - Chapter 8 Property, Plant &...

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