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.
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).
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.