ch10 student - Chapter 10: Acquisition and Disposition of...

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Chapter 10: Acquisition and Disposition of Property, Plant, and Equipment
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Acquisition Acquisition costs: land, buildings, equipment Self-constructed assets Interest costs Observations Valuation Cost Subsequent to Acquisition Dispositions Cash discounts Deferred contracts Lump-sum purchases Stock issuance Nonmonetary exchanges Contributions Other valuation methods Sale Involuntary conversion Miscellaneous problems Additions Improvements and replacements Rearrangement and reinstallation Repairs Summary Acquisition and Disposition of Property, Plant, and Equipment
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Used in operations ” and not for resale. Long-term in nature and usually depreciated. Possess physical substance . Property, plant, and equipment are assets of a durable nature. Other terms commonly used are plant assets and fixed assets . Property, Plant, and Equipment LO 1 Describe property, plant, and equipment. Includes: § Land, § Building structures (offices, factories, warehouses) , and § Equipment (machinery, furniture, tools).
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Historical cost measures the cash or cash equivalent price of obtaining the asset and bringing it to the location and condition necessary for its intended use. Main reasons for historical cost valuation: u Historical cost is reliable. u Companies should not anticipate gains and losses but should recognize gains and losses only when the asset is sold. LO 2 Identify the costs to include in initial valuation of property, plant, and equipment.
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Includes all costs to acquire land and ready it for use. Costs typically include: Cost of Land LO 2 (1) purchase price; (2) closing costs, such as title to the land, attorney’s fees, and recording fees; (3) costs of grading, filling, draining, and clearing; (4) assumption of any liens, mortgages, or encumbrances on the property; and (5) additional land improvements that have an indefinite life.
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Improvements with limited lives , such as private driveways, walks, fences, and parking lots, are recorded as Land Improvements and depreciated. u Land acquired and held for speculation is classified as an investment . u Land held by a real estate concern for resale should be classified as inventory . LO 2 Identify the costs to include in initial valuation of property, plant, and equipment. Cost of Land
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Includes all costs related directly to acquisition or construction. Cost typically include: u materials, labor, and overhead costs incurred during construction and u professional fees and building permits. Cost of Buildings LO 2 Identify the costs to include in initial valuation of property, plant, and equipment. Acquisition of PP&E
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LO 2 Cost of Equipment Include all costs incurred in acquiring the equipment and preparing it for use. Costs typically include: 1) purchase price, 2) freight and handling charges, 3) insurance on the equipment while in transit, 4) cost of special foundations if required, 5) assembling and installation costs, and 6) costs of conducting trial runs.
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ch10 student - Chapter 10: Acquisition and Disposition of...

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