Chapter 9 outline

Accounting: Tools for Business Decision Making

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Chapter 9 Reporting and Analyzing Long-Lived Assets Plant assets Characteristics – tangible property that is: 1. Used in operations 2. Useful life of more than 1 year 3. Not purchased for resale Examples include land, buildings, land improvements, machinery and equipment, automobiles and trucks. The cost of a plant asset is cost to acquire plus any other costs incurred to get the asset ready to be used for its intended purpose. Cost of: Land Purchase price Title transfer taxes Removal of old building (net of scrap value received) Seller’s property taxes or other liabilities paid by buyer Buildings Purchase price Architect’s fees Building permits Brokers commissions Renovations Cost of construction materials Construction period interest 1
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Cars, trucks, machinery, equipment, store fixtures, furniture, etc. Purchase price net of discounts Transportation and delivery Insurance while in transit Sales tax and other taxes Installation Testing prior to use Repairs on used equipment before it can be used Land improvements Parking lots Shrubs Sidewalks Fences Retaining walls Underground sprinkling WP pg. 94; BE 1 and 2, pg. 455; Ex. 2, pg. 457; Pr 1A, pg. 459 Lump-sum purchases (e.g. Buy land and building together.) Cost is allocated based on relative fair market value. Why is this necessary? WP pg. 95 To Buy or Lease – An alternative to purchasing an asset is leasing. In a lease, a party that owns an asset (the lessor) agrees to allow another party (the lessee) to use the asset for an agreed period of time at an agreed price. Some advantages of leasing an asset versus purchasing it are: (1) reduced risk of obsolescence (2) little or no down payment (3) shared tax advantages 2
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(4) assets and liabilities are not reported in operating leases . An operating lease is an arrangement allowing one party (the lessee) to use the asset of another party (the lessor) and is accounted for as a rental. Under a capital lease , for the lessee, long-term lease agreements are accounted for in a way that is very similar to purchases. A capital lease is a long-term agreement allowing one party (the lessee) to use another party’s asset (the lessor) and is accounted for as a purchase. The
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Chapter 9 outline - Chapter 9 Reporting and Analyzing...

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