Property, Plant, and Equipment

Property, Plant, and Equipment - Plant Assets, Natural...

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Plant Assets, Natural Resources, and Intangibles A. Plant Assets 1. Classification--plant assets are assets that are acquired for use in normal business operations, are long-term in nature, and possess physical substance 2. Acquisition a. Cost--cost is the cash or cash equivalent price of obtaining the asset and bringing it to the location and condition necessary for its intended use 1) Land--the cost of land includes all expenditures incurred to acquire land and to make it ready for use including the following: a) Purchase Price--the cost of land includes the purchase price of the land and the assumption of any liens, liabilities, or encumbrances on the property (such as back property taxes and an outstanding mortgage) b) Closing Costs--the cost of land includes closing costs (such as legal fees, title costs, and recording fees) c) Preparation Costs-–the cost of land includes costs incurred to get the land in condition for its intended use (such as grading, filling, draining, clearing, and demolition of old buildings) less any proceeds obtained in getting the land in condition for its intended use (such as salvage receipts from the demolition of an old building and the sale of cleared timber) d) Special Assessments--the cost of land includes special assessments for local improvements (such as pavements, street lights, sewers, and drainage systems) e) Landscaping--the cost of land includes the cost of landscaping 2) Land Improvements--the cost of land improvements includes all expenditures incurred to improve the land that are maintained and replaced by the owner including the following: a) Private Driveways b) Sidewalks c) Fences d) Parking Lots e) Lighting 3) Buildings--the cost of buildings includes all expenditures incurred that are directly related to their purchase or construction including: a) Purchase Price b) Professional Fees--the cost of buildings includes architect’s fees to design the building c) Construction Costs--the cost of buildings includes construction costs from excavation to completion 1
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d) Building Permits 4) Equipment--the cost of equipment includes all expenditures incurred in acquiring the equipment and preparing it for use including the following: a) Purchase Price b) Shipping Costs--the cost of equipment includes freight and handling charges and insurance on the equipment while in transit c) Installation--the cost of equipment includes the cost of special foundation, assembly and installation d) Set Up Costs--the cost of equipment includes the costs of conducting trial runs b. Special Considerations 1) Lump-sum Purchase--when two or more plant assets are purchased at a lump-sum price, the purchase price is allocated to the various assets using their relative fair market value (appraisal value, assessed valuation for property taxes, etc.) a) Illustration--a corporation purchased a factory for $880,000; appraisal values were $90,000 for the land, $360,000 for the building, and $450,000 for the equipment Appraisal Value
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This note was uploaded on 04/12/2011 for the course ACCT 2310 taught by Professor Santoshattar during the Fall '08 term at Cuyahoga CC.

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Property, Plant, and Equipment - Plant Assets, Natural...

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