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ACCT3111-PPE - Chapter 10 Property Plant and Equipment...

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Chapter 10 Property, Plant and Equipment: Acquisition and Disposal Objectives 1. Identify the characteristics of property, plant, and equipment. 2. Record the acquisition of property, plant, and equipment. 3. Determine the cost of assets acquired by the exchange of other assets. 4. Compute the cost of a self-constructed asset, including interest capitalization. 5. Record costs subsequent to acquisition. 6. Record the disposal of property, plant, and equipment. 1. Characteristics of Property, Plant, and Equipment To be included in the property, plant, and equipment category, an asset must have three characteristics: 1. The asset must be held for use and not for investment. 2. The asset must have an expected life of more than one year. 3. The asset must be tangible in nature. 2. Record the acquisition of property, plant, and equipment Historical Cost (fair value oat the date of acquisition) Consistent with Inconsistent with Capitalizing or Expensing Costs are necessary to obtain the benefits to be derived from the asset are capitalized Cost of Land Contract price Costs of closing the transaction, obtaining the title, options, legal fees, title search, insurance, past due taxes Cost of surveys Clearing and grading property to get it ready for its intended use Razing old buildings (net of salvage) Cost of Land Improvements Landscaping Streets Sidewalks 1
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Sewers Cost of Buildings Contract price Remodeling and reconditioning Excavating for the specific building Architectural and building permit costs Capitalized interest Certain unanticipated costs Example: Devon Company purchases a machine with a contract price of $100,000 on terms of 2/10, n/ 30. The company does not take the cash discount and incurs transportation costs of $2,500, as well as installation and testing costs of $3,000. Sales taxes total $7,000 on the purchase. During installation,
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