Chapter 10 Notes

Chapter 10 Notes - Chapter 10: Acquisition and Disposition...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 10: Acquisition and Disposition of Property, Plant, and Equipment Property, Plant, and Equipment - Major characteristics of property, plant, and equipment: o They are acquired for use in operations and not for resale o They are long-term in nature and usually depreciated o They possess physical substance Acquisition of Property, Plant, and Equipment - Most companies use historical cost when valuing property, plant, and equipment - Historical Cost - measures the cash or cash equivalent price of obtaining the asset and bringing it to the location and condition necessary for its intended use - Companies add to the asset’s cost any related costs incurred after the asset’s acquisition, such as additions, improvements, or replacements, if they provide future service potential - Subsequent to acquisition, companies should not write up property, plant, and equipment to reflect fair value when it is above cost, the main reasons for this position are as follows: o Historical cost involves actual, not hypothetical, transactions and so is the most reliable o Companies should not anticipate gains and losses but should recognize gains and losses only when the asset is sold - Difficulty developing a reliable fair value for these types of assets - If fair value is less than its carrying amount, the asset may be written down o Occur when asset is impaired and in situations where the asset is being held for sale o A long-lived asset classified as held for sale should be measure dat the lower of its carrying amount or fair value less cost to sell o Long-lived asset is not depreciated if it is classified as held for sale Cost of Land
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
- All expenditures made to acquire land and ready it for use are considered part of the land cost - Any proceed from getting asset ready are reductions in the price of the land - In certain situations, the cost of the land is the cash paid for it, plus the encumbrances - Special assessments should be charged to the land price because they are permanent - Any improvements made should be charged to the land account - Record separately improvements with limited lives - Land is typically a property, plant, and equipment except when holding land is speculative, land can be considered an investment - If a real estate concern holds the land for resale, is should classify the land as inventory Cost of Buildings - Cost of buildings should include all expenditures related directly to their acquisition or construction - These cost include: o Materials, labor, and overhead costs incurred during construction o Professional fees and building permits - Companies consider all cost incurred, from excavation to completion, as part of building costs - If a company purchases land with an old building on it, then the cost of demolition less its salvage value is a cost of getting the land ready for its intended use and relates to the land rather than to the new building Cost of Equipment - Include delivery equipment, office equipment, machinery, furniture and fixtures,
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/22/2011 for the course BUAD 362 taught by Professor Frazer during the Spring '10 term at Millersville.

Page1 / 11

Chapter 10 Notes - Chapter 10: Acquisition and Disposition...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online