48 - Land has an unlimited life and is the only plant asset...

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Lump-Sum Purchases Companies purchase several assets in a group for one price Cost is allocated to individual assets by on their market values Capital Expenditure vs. Immediate Expense Capital Expenditure Increase capacity or extend life Examples: Major overhaul Building additions Immediate Expense Maintain or restore to working order Examples: Minor repairs Painting NOTE: Most companies set a dollar amount to decide if an expenditure should be capitalized or expensed Measuring Depreciation on Plant Assets Plant assets wear out or grow obsolete over time The cost of a plant asset is allocated to an expense over its life Matches expense of using the asset to the revenues the asset helped produce
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Unformatted text preview: Land has an unlimited life and is the only plant asset not depreciation Depreciation Depreciation is NOT: a process of valuation based on market value decline a method of setting aside cash to replace assets How to Measure Depreciation Three items needed Cost of the plant asset Estimated useful life How long the company expects to use the asset Estimated residual value Expected cash value of asset at the end of its life Can be zero Depreciable Cost = Assets cost Estimated residual value...
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