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notetaker final

notetaker final - Chapter 9 Reporting and Analyzing...

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Chapter 9 – Reporting and Analyzing Long-Lived Assets Plant Assets Plant assets are resources that have: o Physical substance (a definite size and shape). o Are used in the operations of a business. o Aren’t intended for sale to customers. o Are expected to provide service to the company for a number of years, except for land. Referred to as property, plant, and equipment; plant and equipment; and fixed assets. Plant assets are critical to a company’s success. Determining the Cost of Plant Assets Cost Principle: requires that companies record plant assets at cost. o Cost consists of all expenditures necessary to acquire an asset and make it ready for its intended use. Land. o All necessary costs incurred in making land ready for its intended use increase ( debit) the Land account. o Costs typically include: Cash purchase price. Closing costs such as title and attorney’s fees. Real estate brokers’ commissions. Accrued property taxes and other liens on the land assumed by the purchaser. Land Improvements. o Includes all expenditures necessary to make the improvements ready for their intended use. Examples: driveways, parking lots, fences, landscaping, and underground sprinklers. Limited useful lives. Expense (depreciate) the cost of land improvements over their useful lives. Buildings. o Includes all costs related directly to purchase or construction. o Purchase costs: Purchase price, closing costs (attorney’s fees, title insurance, etc), and real estate broker’s commission. Remodeling and replacing or repairing the roof, floors, electrical wiring, and plumbing. o Construction costs: contract price plus payments for architects’ fees, building permits, and excavation costs. Equipment. o Include all costs incurred in acquiring the equipment and preparing it for use. o Costs typically include: Cash purchase price. Sales taxes. Freight charges. Insurance during transit paid by the purchaser.
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Expenditures required in assembling, installing, and testing the unit. To Buy or Lease? o A lease is a contractual agreement in which the owner of an asset ( lessor) allows another party ( lessee) to use the asset for a period of time at an agreed price. o Some advantages of leasing: Reduced risk of obsolescence. Little or no down payment. Shared tax advantages. Assets and liabilities not reported. o Capital lease- lessees show the asset and liability on the balance sheet. Accounting for Plant Assets Depreciation: process of allocating to expense the cost of a plant asset over its useful (service) life in a rational and systematic manner. o Process of cost allocation, not asset valuation. o Applies to land improvements, buildings, and equipment, not land.
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notetaker final - Chapter 9 Reporting and Analyzing...

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