Chap 10 Outline[1]

Chap 10 Outline[1] - Chapter Outline I. Plant...

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Chapter Outline Notes I. Plant Assets— Tangible assets used in a company's operations that have a useful life of more than one accounting period. Consistent with cost principle, recorded at cost. Cost includes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use. A. Land Cost includes purchase price, real estate commissions, title insurance, legal fees, accrued property taxes, legal fees, title insurance fees, accrued property taxes, surveying, clearing, landscaping, and local government assessments (current or future) for streets, sewers, etc. Also includes cost of removal of any existing structures (less proceeds from sale of salvaged material). Land cost is not allocated to expense if it has an indefinite life. B. Land Improvements Costs that increase the usefulness of the land. 1. Examples: parking lot surfaces, driveways, fences, and lighting systems (all have limited useful lives). 2. Costs are charged to a separate Land Improvement account. 3. Costs are allocated to the periods they benefit (depreciated). C. Buildings 1. If purchased, cost usually includes its purchase price, brokerage fees, taxes, title fees, attorney costs, and all expenditures to make it ready for its intended use (any necessary repairs or renovations such as wiring, lighting, flooring and wall coverings). 2. If constructed for own use, cost includes materials and labor plus a reasonable amount of indirect overhead cost (heat, lighting, power, and depreciation on machinery used to construct the asset). Cost also includes design fees, building permits, and insurance during construction. D. Machinery and Equipment Costs include all normal and necessary expenditures to purchase them and prepare them for their intended use (purchase price, taxes, transportation charges, insurance while in transit, and the installing, assembling and testing of machinery and equipment). E. Lump-Sum Purchase A group of plant assets purchased with a single transaction for a lump-sum price. Individual asset cost is determined by allocating the cost of the purchase among the different types of assets acquired based on their relative market values.
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Chapter Outline Notes II. Depreciation —The process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use. Recorded as a debit to Depreciation Expense and a credit to Accumulated Depreciation. A. Factors in Computing Depreciation 1. Cost—described in section I above. 2. Salvage value—( residual value or scrap value ) an estimate of the asset's value at the end of its benefit period. 3. Useful life—( service life ) length of time the asset is expected to be productively used in a company's operations. Factors affecting useful life include: a . Inadequacy— the insufficient capacity of plant assets to meet the company's growing productive demands. b
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This note was uploaded on 08/29/2011 for the course ACCT 106 taught by Professor A during the Spring '11 term at Ohio State.

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Chap 10 Outline[1] - Chapter Outline I. Plant...

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