-Plant Assets are resources that have:
*Physical Substance (A definite size and shape)
*are used in operations of a business
*are not intended for sale to customers
*are expected to be of use to the company for a number of years
-Historical Cost Principle requires that companies record plant assets at cost.
*Cost consists of all expenditures necessary to acquire an asset and make it ready for its intended use
Determining the Cost of Plant Asset
-Land: All necessary costs incurred in making the land ready for its intended use increase (debit) the Land Account (cash of purchase price, closing cost such as title and attorney’s fees, real estate broker’s commissions, and accrued property taxes and other liens on …show more content…
Cost – Salvage value = Depreciable Cost;
Depreciable Cost ÷ Useful life (in years) = Annual Deprecation Expense
Book value = Cost – Accumulated Deprecation(DIFFERENT FROM DEPRECIABLE COST)
*Units Of Activity
Depreciable cost ÷ Total Units of Activity = Depreciable Cost per Unit
Depreciable Cost Per Unit X Units of Activity during the year = Annual Depreciation Expense
******(Slide 23)Partial Years! Annual Depreciation Expense X (the month of the year. Ex. 9/12, which means it was purchased in march so there’s 9 months left). Same goes to the last year when there’s a remainder, so it would be 3/12.
*Declining-Balance (can appy to Unites of Activity)
Book Value at Beginning of year X Declining-Balance Rate = Annual Deprecation Expense
******Partial Years also applies to this!
Under any method, deprecation stops when the asset’s book value equals expected salvage value
Expenditures during Useful Life
-Ordinary Repair: are expenditures to maintain the operating efficiency and productive life of the unit.
* Debit to Maintenance and Repair Expense.
*Referred to as revenue Expenditures
-Additions and Improvements are costs incurred to increase the operating efficiency, productive capacity, or