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LESSON 9: REPORTING AND ANALYZING LONG-LIVED ASSETS You have already been introduced to long-lived assets in previous Lessons of this course, and in this Lesson, we will add to the information you have previously learned, so that you may have a better understanding of the concepts and procedures used in accounting for non-current assets. Property, Plant and Equipment (PP&E ) Property, Plant and Equipment (PP&E ) assets are resources that have useful lives that exceeds one year have physical substance are used in the operations of a business are not intended for sale to customers deliver service potential over their useful lives Determining the Cost of a PP&E Asset PP&E assets, including Land, are recorded at their original cost, in accordance with the Historical Cost Principle. But the cost is more than just the purchase cost of the asset. The asset’s cost consists of all expenditures necessary to acquire the asset and make it ready for its intended use. The cost of Land and Land Improvements The cost of land includes the following costs: cash price, closing costs, brokers’ commissions, real estate fees accrued property taxes costs to raze a building, drain and fill the land proceeds from sale of salvaged materials are deducted from the cost Hence, the cost to remove (raze) an existing old, dilapidated building, drain the land and fill the land would be part of the costs to make the land ready for its intended use . (And the sale from the salvaged materials from the old razed building should be deducted from the cost of the Land.) However, at the beginning of the excavations for the foundations of the new building to be constructed on the land, the costs go to the new building and not the land. Also, expenditures for additions to the land are called a Land Improvement; for example , a driveway, fence, underground sprinkler system, and sidewalk are all Land Improvements. Land Improvements have a finite useful life, and Accumulated Depreciation is tracked for Land Improvements, whereas Accumulated Depreciation is not tracked for Land. 1
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The cost of Buildings The cost of Buildings includes all the necessary expenditures relating to the purchase or construction of a building, including purchase price closing costs (attorney's fees title insurance) real estate broker's commissions the contract price architect's fees building permits excavation cost (noted above in the discussion about “The Cost of Land”) interest costs during construction If an old building is purchased, but needs to be readied for its intended use, cost includes: expenditures for remodeling rooms or offices replacing or repairing roof, floors, electrical wiring, plumbing The cost of Equipment Equipment costs include the following costs:   purchase price sales tax freight charges and insurance during transit paid by the purchaser expenditures required in assembling installing and testing the unit
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