ah - 64817_09_ch9_p269-310 11/7/08 9 2:23 PM Page 269 Plant...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Plant Assets and Intangibles 9 W HAT Y OU P ROBABLY A LREADY K NOW You probably already know that when you decide to get a car, you must decide if you want to purchase or lease it. If you lease a car, you pay a monthly amount for the use of that vehicle, which is a benefit or expense to you. If you purchase a car for cash instead, there is still a monthly benefit to you, although there are no future payments. The benefit or cost incurred is called depreciation expense. The more a car is used, the less remaining future value to be derived from that asset. In business, the asset is reduced for the loss in usefulness or future benefit as the vehicle is used. Learning Objectives/Success Keys Measure the cost of a plant asset. The cost of a plant asset should include all of the necessary costs to acquire the asset and get it ready for use. In addition to the purchase price of the plant asset, other items that may be necessary and would increase the cost of the asset include: • Taxes, commissions, shipping costs, and insurance on the asset while in transit • Installation and testing costs • Architectural fees, building permits, and costs to repair and renovate the asset for use • Interest on money borrowed to construct the plant asset • Brokerage fees, survey, title and legal fees, payment of back property taxes, and the cost of clearing land and razing unneeded structures If discounts are available and taken advantage of, those amounts would reduce the cost of the plant asset. Review Exhibit 9-2 (p. 483) for examples of items that are considered in the cost of land. Review the section “A Lump-Sum (Basket) Purchase of Assets” in the main text to see how the cost of individual plant assets is determined when a single price is charged for the group. Account for depreciation. Depreciation is the allocation of cost over a plant asset’s useful life. The expense of depreciation is matched against the revenue generated, as shown in Exhibit 9-4 (p. 487). The three most popular methods of depreciation are the straight-line, units-of-production, and double-declining-balance methods. The adjusting entry to depreciate any plant asset is to debit Depreciation expense and credit Accumulated depreciation.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
270 Chapter 9 | Plant Assets and Intangibles Three elements necessary to calculate depreciation are: a. Asset cost—known amount on the books b. Estimated useful life—period of asset usefulness c. Estimated residual value—expected value at the end of the useful life Review “Depreciation Methods” in the main text for examples of the various depreciation methods. Record the disposal of an asset by sale or by trade. When a plant asset is sold, it should be depreciated until the date of disposal. Then the following should be accounted for: • Debit the cash or other proceeds received • Debit the accumulated depreciation • Credit the plant asset cost The difference between the asset cost and accumulated depreciation is book value. If the book value is greater than the proceeds, a debit must also be recorded as a loss on
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 05/31/2011 for the course GH fjf taught by Professor Jgnj during the Spring '11 term at Amirkabir University of Technology.

Page1 / 42

ah - 64817_09_ch9_p269-310 11/7/08 9 2:23 PM Page 269 Plant...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online