Chapter 9 - Long lived assets. In this chapter, you will learn to: Describe how the cost principle applies to plant assets; explain the concept of depreciation; compute periodic depreciation using the straight-line method, and contrast its expense pattern with those of other methods; describe the procedure for revising periodic depreciation;. | 1 Have physical substance Used in business (not just investment) Not for sale to customers Consist of: legal rights processes name recognition patient lists contracts licenses goodwill Property, Plant & Equipment (PP&E) Intangible Assets Long - Lived Assets 9 Improvements, called capital expenditures, are added to the asset account. Extend life, efficiency or capacity Repairs, maintenance and recurring costs are expensed immediately. Called revenue expenditures. Record Depreciation or Amortization Expense each year if asset has a limited life. 2 Purchase - companies must record plant assets at cost. Cost consists of all expenditures necessary to acquire an asset and make it ready for use. GAAP rules and issues regarding Long Lived Assets Land (not land improvements. See later) Debit the land account for costs such as: the cash purchase price, closing costs such as title and attorney’s fees, real estate brokers’ commissions, and Accrued property taxes and other liens on the land assumed by the purchaser. Costs to prepare the land for use such as grading, filling, clearing, razing net of salvage proceeds Land has unlimited life so NO depreciation expense 3 Determining the Cost of Plant Assets Land Improvements 4 Limited useful lives. Expense (depreciate) the cost of land improvements over their useful lives. Examples are driveways, parking lots, fences, landscaping, and underground sprinklers. Determining the Cost of Plant Assets Buildings 5 Purchase costs: Purchase price, closing costs (attorney’s fees, title insurance, etc.) and real estate broker’s commission. Remodeling and replacing roof, floors, electrical wiring, and plumbing. Construction costs: Contract price plus payments for architects’ fees, building permits, interest and taxes during construction period and excavation costs. Chuck Co. International headquarters 5 Determining the Cost of Plant Assets Equipment 6 Debit the equipment account for costs such as: cash purchase price sales taxes . | 1 Have physical substance Used in business (not just investment) Not for sale to customers Consist of: legal rights processes name recognition patient lists contracts licenses goodwill Property, Plant & Equipment (PP&E) Intangible Assets Long - Lived Assets 9 Improvements, called capital expenditures, are added to the asset account. Extend life, efficiency or capacity Repairs, maintenance and recurring costs are expensed immediately. Called revenue expenditures. Record Depreciation or Amortization Expense each year if asset has a limited life. 2 Purchase - companies must record plant assets at cost. Cost consists of all expenditures necessary to acquire an asset and make it ready for use. GAAP rules and issues regarding Long Lived Assets Land (not land improvements. See later) Debit the land account for costs such as: the cash purchase price, closing costs such as title and attorney’s fees, real estate brokers’ commissions, and Accrued property taxes and other liens on .
