accting 301 ch7 min shen

accting 301 ch7 min shen - CH 7 PLANT ASSETS INTANGIBLES...

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1 CH 7 – PLANT ASSETS & INTANGIBLES Tangible versus Intangible: Tangible (Property, plant, and equipment (PP& E) or fixed assets) – have physical substance (can be seen or touched) and are subject to depreciation - Land: does not wear out, not subject to depreciation - Assets subject to depreciation Buildings Equipment Furniture and Fixtures - Natural resource assets are subject to depletion Intangible Assets – subject to amortization Historical cost of PP&E = Acquisition cost of PP&E Includes the purchase price plus all those costs (considered ordinary and necessary) which are required to bring it to the location desired for use, and to make it suitable for its intended purpose The cost of equipment includes: Net purchase price (net of purchase discount) Sales taxes Transportation costs Installation costs Modification to building necessary to install equipment Testing and trial runs Example: Ajax Company incurred the following costs related to the acquisition of a new production machine: purchase price $20,000, purchase discount allowed 2%, sales taxes $1,200, freight charges for delivery $400, cost of materials and labor incurred to get the machine set up and running $1,000, cost of repair because machine was dropped by our employees $600. What is the cost of the new machine?
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2 The cost of land includes: Purchase price (net of purchase discount) Real estate commissions Attorney’s fees Title search Title transfer fees Title insurance premiums Removing old buildings Example: The Byers Structural Metal Company purchased a six-acre tract of land and an existing building for $500,000. The company plans to raze the old building and construct a new office building on the site. In addition to the purchase price, the company made the following expenditures at closing of the purchase: Title insurance $ 3,000 Commissions 16,000 Property taxes 6,000 Shortly after closing, the company paid a contractor $10,000 to tear down the old building and remove it from the site. An additional $5,000 was paid to grade the land. The $6,000 in property taxes included $4,000 of delinquent taxes paid by Byers on behalf of the seller and $2,000 attributable to the portion of the current fiscal year after the purchase date. What should be the capitalized cost of the land? Acquisition examples: On February 1, an equipment was purchased for $40,000 cash and a $80,000 promissory note was signed for the balance due. 2/1
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3 Asset Impairment It is important for management to review long-lived tangible and intangible assets for possible impairment. Impairment occurs when events or circumstances cause the book value of an asset to be higher than estimates of future cash flows (future benefits). If the estimated future cash flows are less than the book value of the asset, the asset should be “written down.” Basket (Lump-Sum) Purchase - several assets acquired in a single transaction and for a lump sum. The lump sum is allocated on the basis of relative market value.
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This note was uploaded on 02/16/2011 for the course ACCOUNTING 301 taught by Professor Chen during the Spring '10 term at George Mason.

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accting 301 ch7 min shen - CH 7 PLANT ASSETS INTANGIBLES...

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