Chapter 10 Class Notes

Chapter 10 Class Notes - Chapter 10 ACQUISITION AND...

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Chapter 10 ACQUISITION AND DISPOSTION OF PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment are assets of a durable nature and also referred to as plant assets, or fixed assets. Property, plant and equipment includes land, buildings, and equipment (machinery, furniture, tools). Major characteristics include: Assets acquired for “use in operations” and not for resale Long-term in nature and usually depreciated Possess physical substance PP&E are valued at historical cost, which measures the cash or cash equivalent price of obtaining the asset and bringing it to the location and condition necessary for its intended use. The main reasons for using historical cost include: At acquisition, cost reflects fair value Historical cost is reliable Companies should not anticipate gains and losses but should recognize gains and losses only when the asset is sold Cost of Land All expenditures made to acquire land and ready it for use are considered part of the land cost. Costs typically include: The purchase price Closing costs, such as title to the land, attorney’s fees, and recording fees Removal of old buildings Costs of grading, filling, draining and clearing Assumption of any liens, mortgages, or encumbrances on the property Additional land improvements that have an indefinite life (like landscaping) Cost of Buildings The cost of buildings includes all expenditures related directly to their acquisition or construction. These costs typically include: Materials, labor and overhead costs incurred during construction Professional fees and building permits 1
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Cost of Equipment The term “equipment” in accounting includes delivery equipment, office equipment, machinery, furniture and fixtures, furnishings, factory equipment and similar fixed assets. All costs incurred in acquiring the equipment and preparing it for use are included. These costs typically include: Purchase price Freight and handling charges Insurance on the equipment while in transit Cost of special foundations, if required Assembling and installation costs Costs of conducting grail runs The following expenditures and receipts are related to land , land improvements, and buildings acquired for use in a business enterprise. They should be classified as follows: Money borrowed to pay building contractor Notes Payable Payment for construction from note proceeds Building Cost of land fill and clearing Land Delinquent real estate taxes on property assumed Land Premium on insurance policy during construction Building Refund of 1-month insurance premium because construction completed early (Building) Architect’s fee on building Building Cost of real estate purchased as a plant site (land $200,000 and building $50,000) Land Commission fee paid to real estate agency Land Cost of razing and removing building
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This note was uploaded on 12/09/2011 for the course ACC 371 taught by Professor Proscott during the Spring '11 term at S. Alabama.

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Chapter 10 Class Notes - Chapter 10 ACQUISITION AND...

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