Management 1A Lecture Notes (8)

Management 1A Lecture Notes (8) - Management 1A Lecture...

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Management 1A Lecture Notes Professor Gardner-Treloar Week 10
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Plant Assets, Natural Resources and Intangible Assets Amount capitalized Ordinary and Necessary All costs that are ordinary and necessary to get the asset ready for its intended use should be capitalized into the asset account Equipment Cost 4900 Installation 400 All costs incurred on capitalized Testing 500 They go on the balance sheet Sales tax 200 Delivery 100 6100 Journal Entry Dr Equip 6100 Cr Cash 6100 -If the asset will last us a long time capitalize (place on balance sheet) -If the asset will be used up quickly expense (place on income statement) Land Example: We buy some land with a building on it We don’t want the building, so we raze it (tear it down) We have to remove the rubble -Sometimes we have to pay them to take it away -Sometimes they’ll pay us for the rubble so they can do something else with it -If we pay them, we add the cost. If they pay us, we subtract the cost Cost 2000 Taking down the building is included in the cost of Raze 500 land not the cost of the new building Rubble 100 2600 If you build a new building on that land you include it separately as a new building Prepare the journal entry to capitalize the land Dr land 2600 Cr cash 2600 Depreciation -Depreciation It is a “Systematic and Rational” allocation of an asset’s cost over its useful life
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1 2 3 4 5 6 Year Annual Depreci ation $1000 What depreciates? NOT land Machinery Buildings (plants) Vehicles Furniture and fixtures Land improvements that have finite lives (ie: fences) -Amortization -Expensing intangible assets over time in a manner similar to depreciation -These are amortized over their useful or legal right -What is an intangible asset? -They must lack physical substance
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Management 1A Lecture Notes (8) - Management 1A Lecture...

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