{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Chapter10outline

Chapter10outline - CHAPTER REVIEW Plant Assets 1(S.O 1...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER REVIEW Plant Assets 1. (S.O. 1) Plant assets are resources that have a physical substance ( a definite size and shape), are used in the operations of a business and are not intended for sale to customers. They are also called property, plant, and equipment ; plant and equipment ; or fixed assets. Cost of Plant Assets 2. Plant assets are recorded at cost in accordance with the cost principle of accounting. Cost con- sists of all expenditures necessary to (1) acquire the asset and (2) make it ready for its intended use. 3. The cost of land includes the cash purchase price, closing costs such as title and attorney’s fees, real estate brokers’ commissions, and accrued property taxes and other liens on the land as- sumed by the purchaser. All necessary costs incurred in making land ready for its intended use are debited to the Land Account. 4. Land improvements are structural additions made to land, such as driveways, parking lots, fences, landscaping, and underground sprinklers. The cost of land improvements includes all expenditures needed to make the improvements ready for their intended use. 5. The cost of buildings includes all necessary costs related to the purchase or construction of a building: a. When a building is purchased, such costs include the purchase price, closing costs, and real estate broker's commission. b. Costs to make the building ready for its intended use include expenditures for remodeling and replacing or repairing the roof, floors, wiring, and plumbing. c.When a new building is constructed, cost consists of the contract price plus payments for archi- tects' fees, building permits, interest payments during construction, and excavation costs. 6. The cost of equipment consists of the cash purchase price, sales taxes, freight charges, and in- surance paid by the purchaser during transit. Cost includes all expenditures required in assem- bling, installing, and testing the unit. Recurring costs such as licenses and insurance are ex- pensed as incurred. Depreciation 7. (S.O. 2) Depreciation is the process of allocating to expense the cost of a plant asset over its useful (service) life in a rational and systematic manner. a. The cost allocation is designed to provide for the proper matching of expenses with revenues in accordance with the matching principle. b. During an asset's life, its usefulness may decline because of wear and tear or obsolescence. c.Recognition of depreciation does not result in the accumulation of cash for the replacement of the asset. 8. Three factors that affect the computation of depreciation are (1) cost, (2) useful life, and (3) sal- vage value. 9. Three methods of recognizing depreciation are (a) straight-line, (b) units of activity, and (c) declining-balance. a. Each method is acceptable under generally accepted accounting principles.
Image of page 1

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

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern