Property, Plant, and Equipment

Property, Plant, and Equipment - Property, Plant, and...

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

View Full Document Right Arrow Icon
Property, Plant, and Equipment A. Classification--property, plant, and equipment are assets that are acquired for use in normal business operations, are long-term in nature, and possess physical substance B. Acquisition 1. Cost--cost is the cash or cash equivalent price of obtaining the asset and bringing it to the location and condition necessary for its intended use a. Land--the cost of land includes all expenditures incurred to acquire land and to make it ready for use including the following: 1) Purchase Price--the cost of land includes the purchase price of the land and the assumption of any liens, liabilities, or encumbrances on the property (such as back property taxes and an outstanding mortgage) 2) Closing Costs--the cost of land includes closing costs (such as legal fees, title costs, and recording fees) 3) Preparation Costs-–the cost of land includes costs incurred to get the land in condition for its intended use (such as grading, filling, draining, clearing, and demolition of old buildings) less any proceeds obtained in getting the land in condition for its intended use (such as salvage receipts from the demolition of an old building and the sale of cleared timber) 4) Special Assessments--the cost of land includes special assessments for local improvements (such as pavements, street lights, sewers, and drainage systems) 5) Landscaping--the cost of land includes the cost of landscaping b. Land Improvements--the cost of land improvements includes all expenditures incurred to improve the land that are maintained and replaced by the owner including the following: 1) Private Driveways 2) Sidewalks 3) Fences 4) Parking Lots 5) Lighting c. Buildings--the cost of buildings includes all expenditures incurred that are directly related to their purchase or construction including: 1) Purchase Price 2) Professional Fees--the cost of buildings includes architect’s fees to design the building 3) Construction Costs--the cost of buildings includes construction costs from excavation to completion 4) Building Permits 1
Background image of page 1

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

View Full DocumentRight Arrow Icon
d. Equipment--the cost of equipment includes all expenditures incurred in acquiring the equipment and preparing it for use including the following: 1) Purchase Price 2) Shipping Costs--the cost of equipment includes freight and handling charges and insurance on the equipment while in transit 3) Installation--the cost of equipment includes the cost of special foundation, assembly and installation 4) Set Up Costs--the cost of equipment includes the costs of conducting trial runs 2. Special Considerations a. Cash Discounts--when a plant asset is purchased subject to a cash discount, the discount (whether taken or not) is considered a reduction in the cost of the asset 1) Illustrations a) A corporation purchased equipment for $50,000; a cash discount of 2% was available if payment was made within 10 days; payment was made within the discount period Equipment = 50,000 – 2% x 50,000 = 49,000 Loss = 0 b) A corporation purchased equipment for $50,000; a cash
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 document was uploaded on 11/30/2011.

Page1 / 23

Property, Plant, and Equipment - Property, Plant, and...

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