C09 - 1 Property, Plant, and Property, Plant, and...

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Unformatted text preview: 1 Property, Plant, and Property, Plant, and Equipment: Equipment: Acquisition and Acquisition and Disposal Disposal C hapter 9 An electronic presentation by Douglas Cloud Pepperdine University 2 1. Identify the characteristics of property, plant, and equipment. 2. Record the acquisition of property, plant, and equipment. 3. Determine the cost of assets acquired by the exchange of other assets. 4. Compute the cost of a self-constructed asset, including interest capitalization. Objectives Continued Continued 3 5. Record costs subsequent to acquisition. 6. Record the disposal of property, plant, and equipment. 7. Understand the disclosures of property, plant, and equipment. 8. Explain the accounting for oil and gas properties (Appendix). Objectives 4 Characteristics of Property, Plant, and Equipment 1. The asset must be held for use and not for investment. 2. The asset must have an expected life of more than one year. 3. The asset must be tangible in nature. To be included in the property, plant, and equipment category, an asset must have three characteristics: 5 Acquisition of Property, Plant, and Equipment Determination of Cost Devon Company purchases a machine with a contract price of $100,000 on terms of 2/10, n/30. The company does not take the cash discount and incurs transportation costs of $2,500, as well as installation and testing costs of $3,000. Sales taxes total $5,000 on the purchase. During installation, uninsured damages of $500 are incurred. What is the cost of What is the cost of the machine? the machine? 6 Acquisition of Property, Plant, and Equipment Determination of Cost Contract price $100,000 Discount not taken (2,000 ) Transportation cost 2,500 Installation and testing 3,000 Sales tax 5,000 Cost of machine $108,500 7 Acquisition of Property, Plant, and Equipment Machine 108,500 Repair Expense 500 Discounts Lost 2,000 Cash 111,000 The company does not include the $500 damage as part of the cost of the machinery because it was not a necessary cost. 8 Contract price Costs of closing the transaction, obtaining the title, options, legal fees, title search, insurance, past due taxes Acquisition of Property, Plant, and Equipment Cost of Land Cost of surveys Clearing and grading property to get it ready for its intended use Razing old buildings (net of salvage) 9 Landscaping Streets Sidewalks Sewers Acquisition of Property, Plant, and Equipment Cost of Land Improvements 10 Contract price Remodeling and reconditioning Excavating for the specific building Architectural and building permit costs Capitalized interest Certain unanticipated costs Acquisition of Property, Plant, and Equipment Cost of Buildings 11 Acquisition of Property, Plant, and Equipment Lump-Sum Purchases A company pays $120,000 for land and a building. The land and building are appraised at $50,000 and $75,000, respectively....
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This note was uploaded on 02/18/2011 for the course ECON 101 taught by Professor Unknown during the Spring '10 term at University of Toronto- Toronto.

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C09 - 1 Property, Plant, and Property, Plant, and...

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