ch10 - CHAPTER 10 Plant Assets, Natural Resources, and...

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CHAPTER 10 Plant Assets, Natural Resources, and Intangible Assets STUDY OBJECTIVES 1. DESCRIBE THE APPLICATION OF THE COST PRINCIPLE TO PLANT ASSETS. 2. EXPLAIN THE CONCEPT OF DEPRECIATION. 3. COMPUTE PERIODIC DEPRECIATION USING DIFFERENT METHODS. 4. DESCRIBE THE PROCEDURE FOR REVISING PERIODIC DEPRECIATION. 5. DISTINGUISH BETWEEN REVENUE AND CAPITAL EXPENDITURES AND PREPARE THE ENTRIES FOR THESE EXPENDITURES. 6. EXPLAIN HOW TO ACCOUNT FOR THE DISPOSAL OF A PLANT ASSET THROUGH RETIREMENT, SALE, OR EXCHANGE. 7. COMPUTE PERIODIC DEPLETION OF NATURAL RESOURCES. 8. CONTRAST THE ACCOUNTING FOR INTANGIBLE ASSETS WITH THE ACCOUNTING FOR PLANT ASSETS. 10-1
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9. INDICATE HOW PLANT ASSETS, NATURAL RESOURCES, AND INTANGIBLE ASSETS ARE REPORTED AND ANALYZED. CHAPTER REVIEW Plant Assets 1. (S.O. 1) Plant assets are tangible resources that are used in the operations of a business and are not intended for sale to customers. Plant assets are subdivided into four classes: (a) land, (b) land improvements, (c) buildings, and (d) equipment. Cost of Plant Assets 2. Plant assets are recorded at cost in accordance with the cost principle of accounting. Cost consists of all expenditures necessary to (1) acquire the asset and (2) make it ready for its in- tended use. 3. The cost of land includes the cash purchase price plus other related costs. The cost might in- clude closing costs such as title and attorney's fees, real estate brokers' commissions, and accrued property taxes and other liens on the land assumed by the purchaser. All necessary costs incurred in making land ready for its intended use are debited to the Land Account. 4. The cost of land improvements includes all expenditures needed to make the improvements ready for their intended use such as the cost of a new parking lot, fencing, and lighting. 5. The cost of buildings includes all necessary costs related to the purchase or construction of a building: a. When a building is purchased, such costs include the purchase price, closing costs, and real estate broker's commission. b. Costs to make the building ready for its intended use include expenditures for remodeling and replacing or repairing the roof, floors, wiring, and plumbing. c.When a new building is constructed, cost consists of the contract price plus payments for ar- chitects' fees, building permits, interest payments during construction, and excavation costs. 6. The cost of equipment consists of the cash purchase price, sales taxes, freight charges, and insurance paid by the purchaser during transit. Cost includes all expenditures required in as- sembling, installing, and testing the unit. Recurring costs such as licenses and insurance are expensed as incurred. Depreciation
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This note was uploaded on 01/27/2010 for the course MGT 011A taught by Professor Hancock,john during the Spring '07 term at UC Davis.

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ch10 - CHAPTER 10 Plant Assets, Natural Resources, and...

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