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Ch10s - Chapter10 Plant,andEquipment Chapter10:KeyConcepts...

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Chapter 10 Acquisition and Disposition of Property,  Plant, and Equipment
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Chapter 10: Key Concepts What is PP&E? Acquisition Valuation Dispositions Post-Acquisition Costs 2 Accounting 301A-Eiler
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What is PP&E? Operational Assets not  held for resale. Long-Term Typically Depreciated. Exception? _Land_________. Tangible Assets with Physical Substance Physical assets that produce benefits. Examples? _____Buildings, machines___________. Intangible Assets that Lack Physical Substance Rights that produce benefits. Examples? Patents, franchise Accounting 301A-Eiler 3
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PP&E Accounting Issues Determining Acquisition Cost. Costs included in the acquisition cost of the asset differ across  asset types. Sometimes additional amounts are “capitalized”. Special issues if the asset is self-constructed. Valuation Issues in Reporting PP&E on the Financial  Statements. Accounting for Dispositions. Accounting for Costs Subsequent to Acquisition. Repairs & Maintenance; Improvements Capitalize or Expense? Accounting 301A-Eiler 4
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Determining Acquisition Cost Key Question is what amount should be capitalized (i.e.,  recorded as an asset) at time of acquisition? Accounting objective is to capitalize costs that produce  benefits in future periods  and expense any costs that do not  produce future benefits. What happened in the WorldCom case? Overstated net income Accounting 301A-Eiler 5
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Determining Acquisition Cost Land Purchase price. Closing costs, attorney fees, and recording fees. Costs of getting land ready for use (clearing, etc.). Includes the cost of buildings on the land and their removal, if  they are demolished and removed. Special assessments for local improvements. Assumption of liens or encumbrances. Additional improvements with an indefinite life. Note: Sale of salvaged materials reduces cost. Accounting 301A-Eiler 6
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Determining Acquisition Cost Land Improvements have a limited useful life and are  recorded in a separate account & depreciated over useful  life (e.g., sidewalks, landscaping, parking lots, fencing).  Buildings Costs incurred during construction: Materials, Labor, &  Overhead.  Professional Fees (Legal, Architects, etc.) & Building  Permits. Equipment Purchase Price. Freight & Shipping Charges. Special Foundations, Installation, & Initial Testing Costs. Accounting 301A-Eiler 7
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Determining Acquisition Cost Self-Constructed Assets Assets constructed by the business for use in operations.
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