Study guide for Exam 5 (Ch 9,10)
As always, you should know all terms and definitions used in the chapters.
Long Lived Assets = Plant Assets + Intangible Assets
Property, plant and equipment = plant and equipment = fixed assets = plant assets
cost consists of all expenditures necessary to acquire the asset and make it ready for
its intended use
: Cash price, closing costs, brokers’ commissions, accrued property taxes, etc. Can
also include costs to raze a building, drain and fill the land. Proceeds from sale of
salvaged materials are deducted from the cost
Drive ways, Parking lots, Fences, Underground sprinklers
All necessary expenditures relating to the purchase or construction of a
When a building is purchased such costs include
the: purchase price, closing
costs (attorney's fees title insurance), real estate broker's commissions.
If a building is purchased, but needs to be readied for its intended use
, cost includes
expenditures for remodeling rooms or offices, replacing or repairing roof, floors,
electrical wiring, plumbing.
When a building is constructed, its cost consists of:
the contract price
interest costs during construction.
Equipment: purchase price:
freight charges and insurance during transit paid
by the purchaser
expenditures required in assembling
installing and testing the unit.
Two criteria apply in determining the cost of equipment: the frequency of cost - one time
or recurring . the benefit period - the life of the asset or 1 year
Reason for depreciating assets:
The revenue-producing ability of an asset declines
during its useful life because of wear and tear.
A decline in revenue producing ability
may also occur because of obsolescence. Land does not depreciate.
What are the depreciation guidelines?: