CHAPTER 10 Acquisition and Dispositionof Property, Plant, and Equipment

CHAPTER 10 Acquisition and Dispositionof Property, Plant, and Equipment

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10-1 CHAPTER 10 Acquisition and Disposition of Property, Plant, and Equipment
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10-2 LECTURE OUTLINE Chapter 10 presents issues related to the acquisition and disposition of fixed assets. The chapter, which can generally be covered in three class sessions, deals with three major topics: 1. General principles involved in accounting for the acquisition and disposition of fixed assets: Students should be familiar with these from elementary accounting courses. 2. Capitalization of interest cost during construction: Students generally have difficulty with the computational procedures required. 3. Nonmonetary exchanges: This is a difficult topic for some students. Students should be encouraged to understand the principles underlying APB Opinion No. 29. The following lecture outline is appropriate for this chapter. A. Characteristics of Property, Plant, and Equipment. 1. Acquired for use and not resale. 2. Long-term in nature and subject to depreciation, except for land. 3. Possess physical substance. B. Acquisition of Property, Plant, and Equipment. 1. Historical cost is the usual basis for valuation. This is the cash or cash equivalent price of obtaining the asset and getting it ready for its intended use. 2. Components of cost.
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10-3 a. Cost of Land: All expenditures made to acquire the land and prepare it for use are included in the cost of the land. Special assessments for relatively permanent improvements such as pavements and drainage systems are included in the land account. Improvements with limited lives are recorded separately as Land Improvements and depreciated over their estimated lives. b. Cost of Buildings: All expenditures related directly to acquisition or construction are capitalized. This includes attorneys’ and architects’ fees, building permits, and all costs incurred beginning with excavation and ending with completion of the building. c. Cost of Equipment: All expenditures incurred in acquiring the equipment and preparing it for use are included. This includes freight charges, insurance while in transit, assembly costs, and the cost of conducting trial runs. d. Self-Constructed Assets: Such assets may cause valuation problems because of the assignment of overhead. The options are to assign a portion of all overhead, allocate on a basis of lost production, or assign no fixed overhead. The first option is preferred.
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CHAPTER 10 Acquisition and Dispositionof Property, Plant, and Equipment

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