Chapter10outline

Chapter10outline - CHAPTER REVIEW Plant Assets 1(S.O 1 Plant assets are resources that have a physical substance a definite size and shape are used

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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.
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This note was uploaded on 07/18/2011 for the course ACCT 50 taught by Professor Lee during the Spring '11 term at UCLA.

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Chapter10outline - CHAPTER REVIEW Plant Assets 1(S.O 1 Plant assets are resources that have a physical substance a definite size and shape are used

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