ch10B - PREVIEW OF CHAPTER 10 PLANT ASSETS NATURAL...

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PREVIEW OF CHAPTER 10 PLANT ASSETS, NATURAL RESOURCES, AND INTANGIBLE ASSETS Plant Assets Determining the cost of plant assets Depreciation Expenditures during useful life Plant asset disposals Natural Resources Accounting for intangibles Research and development costs Intangible Assets
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Eliminate book value of the plant asset at date of sale. Record cash proceeds from the sale. Compute gain or loss . If cash proceeds > book value, recognize a gain for the difference. If cash proceeds < book value, recognize a loss by for the difference. PLANT ASSET DISPOSALS
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8,000 On July 1, 2002, a company sells office furniture for $16,000 cash. The office furniture originally cost $60,000. As of January 1, 2002, its accumulated depreciation is $41,000. Depreciation for the first six months of 2002 is $8,000. GAIN ON DISPOSAL
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GAIN ON DISPOSAL After the accumulated depreciation is updated, compute gain or loss: 16,000 49,000
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LOSS ON DISPOSAL If the company sells the office furniture for $9,000, … 9,000 49,000
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Exchanges of plant assets can be for similar or dissimilar assets. Similar assets - same type - perform same function In exchanges of similar assets, we need to determine 1. cost of the (new) asset acquired and 2. gain or loss on the (old) asset given up. EXCHANGES OF PLANT ASSETS
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Cost of (new) asset acquired = Fair market value of old asset given up + any cash or other consideration given up. COST OF (NEW) ASSET ACQUIRED
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COST OF NEW OFFICE EQUIPMENT A company exchanges old office equipment for new similar office equipment. Book value of old office equipment is $26,000 ($70,000 cost less $44,000 accumulated depreciation), its fair market value is $10,000, and $81,000 of cash is paid.
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A loss results when book value > fair market value of the asset given up. Losses on the exchange of similar assets are recognized immediately.
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