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121_07 - CHAPTER 7 PLANT ASSETS INTANGIBLE ASSETS RELATED...

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CHAPTER 7 PLANT ASSETS INTANGIBLE ASSETS RELATED EXPENSES LONG-LIVED ASSETS Used in operation of business Needed to generate revenue Life of more than one year Property, plant and equipment Investments in other corporations Intangible assets PROPERTY, PLANT, EQUIP. Land Leasehold improvements Buildings Equipment Furniture INTANGIBLE ASSETS Legal rights Patents Copyrights Trademarks LONG-LIVED ASSETS Land None Depreciation Amortization Depletion Intangibles Natural Resources Buildings Machinery and Equipment Furniture and Fixtures Land Improvements Balance sheet Income statement WHERE IS DEPRECIATION? Income statement Selling, administrative, general expenses Cost of goods sold (manufacturing) Statement of cash flows
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COST OF PLANT ASSETS All amounts paid to Acquire asset Place it into productive service Improve the asset Lengthen life of asset Change nature of asset COST OF LAND Purchase price Brokerage commissions Survey fees Legal fees Land grading and clearing Demolition of unwanted buildings Purchase price of land $300,000 Add related costs: Legal fees $10,000 Transfer taxes 8,000 Building removal cost 5,000 Survey Fee 1,000 Total related costs 24,000 Total cost of land $324,000 324,000 Cash 324,000 Land Credit Debit Description Date LAND IMPROVEMENTS Paving Driveways Signs Lights Fences Sprinkler systems COST OF IMPROVEMENTS Pave parking lot, $260,000 260,000 Cash 260,000 Land improvements Credit Debit Description Date CONSTRUCTING BUILDING Cost includes Architectural fees Building permits Contractors’ charges Payments for material Labor Overhead
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PURCHASE EXISTING BUILDING Purchase price Brokerage commissions Sales and other taxes Repairs Renovations for intended purpose MACHINERY, EQUIPMENT Purchase price (less discounts) Transportation charges Insurance while in transit Sales and other taxes Purchase commissions Installation costs Expenditures for testing PRACTICE QUESTIONS Question 1 EXPENDITURES ON ASSETS Expenditures made over lifetime Revenue expenditures (debit exp.) Capital expenditures (debit asset) CAPITALIZE OR EXPENSE? Does the expenditure increase life or salvage value, or change nature of asset? Capital Expenditure Debit asset Expense Debit expense REVENUE EXPENDITURES Debit expense account All expected expenditures when we estimated life and salvage value Maintain asset in usable condition Does not extend original life, salvage Does not change nature of asset
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REVENUE EXPENDITURES Ordinary repairs Fix flat tire Change oil Replace windshield CAPITAL EXPENDITURES Debit an asset account For expenditures not planned when we estimated life, salvage value Increase life, salvage Change function CAPITAL EXPENDITURES Extraordinary repairs Replace engine Modify for new use Add storage capacity PRACTICE QUESTIONS Question 2 ALLOCATION OF “BASKET” Purchase land and building, $2,800,000 2,800,000 Cash ?,???,??? Building ?,???,??? Land Credit Debit Description Date ALLOCATION OF “BASKET” Allocate cost to individual assets Total cost divided among assets according to relative market value
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ALLOCATION OF “BASKET”
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