Lecture Notes Chapter 9

Lecture Notes Chapter 9 - CHAPTER 9 Reporting and Analyzing...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 9 Reporting and Analyzing Long-Lived Assets Study Objectives Chapter Outline Study Objective 1 - Describe how the Cost Principle Applies to Plant Assets H Plant assets are resources that have physical substance (a definite size and shape), are used in the operations of a business, and are not intended for sale to customers. a It is important for companies to (1) keep assets in good operating condition, (2) replace worn-out or outdated assets, and (3) expand its productive assets as needed. a The cost principle requires that plant assets be recorded at cost. a Cost consists of all expenditures necessary to acquire an asset and make it ready for its intended use. a If a cost is not included in a plant asset account, then it must be expensed immediately. Such costs are referred to as revenue expenditures . Costs that are not expensed immediately, but are instead included in a plant asset account are referred to as capital expenditures . a Cost is measured by the cash paid in a cash transaction or by the cash equivalent price paid when non-cash assets are used in payment. The cash equivalent price is equal to the fair market value of the asset given up or the fair market value of the asset received, whichever is more clearly determinable. a Once cost is established, it becomes the basis of accounting for the plant asset over its useful life. a Land – Land is often used as a building site for a manufacturing plant or office. The cost of land includes: (1) The cash purchase price (2) Closing costs such as title and attorney's fees (3) Real estate brokers’ commissions (4) Accrued property taxes and other liens on the land assumed by the purchaser a All necessary costs incurred in making land ready for its intended use increase 9-1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
(debit) the Land account. a Land improvements – Land improvements are structural additions made to land such as driveways, parking lots, fences, and underground sprinklers. a The cost of land improvements includes all expenditures necessary to make the improvements ready for their intended use. a The cost of a new company parking lot includes the amount paid for paving, fencing, and lighting. a The total of all these costs would be debited to Land Improvements. a Because land improvements have limited useful lives, their costs are expensed (depreciated) over their useful lives. a Buildings – Buildings are facilities used in operations, such as stores, offices, factories, warehouses, and airplane hangars. a All necessary expenditures relating to the purchase or construction of a building are charged to the building account. a When a building is purchased , such costs include the purchase price, closing costs (attorney's fees, title insurance, etc.), and real estate broker's commissions. a
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/01/2010 for the course ACCT 2301 taught by Professor White during the Spring '08 term at Central Texas College.

Page1 / 14

Lecture Notes Chapter 9 - CHAPTER 9 Reporting and Analyzing...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online