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
property, plant, and equipment
plant and equipment
Cost of Plant Assets
Plant assets are recorded at cost in accordance with the
of accounting. Cost con-
sists of all expenditures necessary to (1) acquire the asset and (2) make it ready for its intended
The cost of
includes the cash purchase price, closing costs such as title and
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.
are structural additions made to land, such as driveways, parking lots,
fences, landscaping, and underground sprinklers. The cost of
expenditures needed to make the improvements ready for their intended use.
The cost of
necessary costs related to the purchase or construction of a
When a building is purchased, such costs include the purchase price, closing costs, and real
estate broker's commission.
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.
The cost of
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.
is the process of allocating to expense the cost of a plant asset over its
useful (service) life in a rational and systematic manner.
The cost allocation is designed to provide for the proper matching of expenses with revenues
in accordance with the
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
Three factors that affect the computation of depreciation are (1) cost, (2) useful life, and (3) sal-
Three methods of recognizing depreciation are (a) straight-line, (b) units of activity, and (c)