Chapter 10 Class Notes

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

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

View Full Document Right Arrow Icon
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
Image of page 1

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

View Full Document Right Arrow Icon
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 Land
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern