Determining the Cost of Plant Assets LO 1 9 14 Includes all costs related

# Determining the cost of plant assets lo 1 9 14

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Determining the Cost of Plant Assets LO 1
9-14 Includes all costs related directly to purchase or construction. Buildings 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. Construction costs: Contract price plus payments for architects’ fees, building permits, and excavation costs. Determining the Cost of Plant Assets LO 1
9-15 Include all costs incurred in acquiring the equipment and preparing it for use. Costs typically include: Equipment Cash purchase price. Sales taxes. Freight charges. Insurance during transit paid by the purchaser. Expenditures required in assembling, installing, and testing the unit. Determining the Cost of Plant Assets LO 1
9-16 Illustration: Lenard Company purchases a delivery truck at a cash price of \$22,000. Related expenditures are sales taxes \$1,320, painting and lettering \$500, motor vehicle license \$80, and a three-year accident insurance policy \$1,600. Compute the cost of the delivery truck. Truck Cash price Sales taxes Painting and lettering 500 1,320 \$22,000 \$23,820 Cost of Delivery Truck Determining the Cost of Plant Assets LO 1 Illustration 9-4
9-17 Illustration: Lenard Company purchases a delivery truck at a cash price of \$22,000. Related expenditures are sales taxes \$1,320, painting and lettering \$500, motor vehicle license \$80, and a three-year accident insurance policy \$1,600. Prepare the journal entry to record these costs. Equipment 23,820 License Expense 80 Prepaid Insurance 1,600 Cash 25,500 Determining the Cost of Plant Assets LO 1
9-18 Process of cost allocation , not asset valuation . Applies to land improvements, buildings, and equipment, not land . Depreciable because the revenue-producing ability of asset will decline over the asset’s useful life. Process of allocating to expense the cost of a plant asset over its useful (service) life in a rational and systematic manner. Depreciation Plant Assets LO 2
9-19 Factors in Computing Depreciation Illustration 9-6 Depreciation Helpful Hint Depreciation expense is reported on the income statement. Accumulated depreciation is reported on the balance sheet as a deduction from plant assets. Helpful Hint Depreciation expense is reported on the income statement. Accumulated depreciation is reported on the balance sheet as a deduction from plant assets. Alternative Terminology Another term sometimes used for salvage value is residual value. Alternative Terminology Another term sometimes used for salvage value is residual value. LO 2
9-20 Management selects the method it believes best measures an asset’s contribution to revenue over its useful life. Depreciation Methods Examples include: 1. Straight-line method.

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• Spring '11
• pochesci

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