ch 8: acct for long term assets Flashcards
plant asset
tangible assets that have a useful life for more than 1 acct period
4 issues in accounting for plant assits
1-computing the costs
2-allocating the cost
3-acct for subsequenct expenditures
4-recording the disposal
machinery and equipment
purchase price
taxes
transportation charge
insurance in transit
(installing, assembling, and testing)
cost includes
all expenditures necessary to get an asset in place and ready for use
buildings (purchasing one )
-purchase price
-taxes
-title fees
-lawer fees
-repairs/renovations
buildings (making own)
-materials, labor, indirect overhead (heat, lighting,dep on machine) building permits, insuarance, etc
what is land improvements
additions to land that have limitied useful life
-ex parking lot, driveway, fences
-costs equal costs neceaary to make improvmenents
land
-unlimited life
-amt paid, realeste, accureped property taxes.
lump sum purchase
when plant assets are purchased as a group in a single transaction
depreciation
process of allocating the cost of a plant asset to expense while it is in use
factors that determine dep
-cost
-salvage value
-useful life
salvage value
estimate of the assets value at the end of its useful life
useful life
length of time asset is used in operations
straight line depreciation formula
cost-salvage value/useful life
straight line dep entry
D- dep expense
C- accumulated dep
book value
assets total cost- dep
units of production method
Charges a varying amount to depreciation expense for each period of an asset’s useful life depending on its usage
units of production formula
step 1(dep per unit): cost-salvage value/total units of production
step2: dep per unit X units produced in period
straight line dep charge
charges the same amount to expense for each period of the asset’s useful life
declining balance method
1- find straight line rate (100%/useful life)
2- find double declining balance rate (2X straight line rate)
3- find dep expense ( double decline X beg book value)
revenue expenditures
costs that do not materially increase the plant assets life
capital expenditures
costs if the plant assets that provide benefits for longer than the current period
ordinary repairs
expenditires to keep an asset in good operating conditions (exchanging oil)
-part of revenue bc they dont actyally increase anything
betterments
Betterments often involve adding a component to an asset that does not always extend its useful
life
x manual to automaic controls
-part of captial
extraordinary repairs
expenditures that extend thhe assets useful life beyond its original estiate
ex: roofing replacement
intsangibe assets
non physcial assets used in operations that give companies lt rights or comp advantage
amoritzation
Process of allocating the cost of an intangible asset to expense over its estimated useful life.
patent
Exclusive right to manufacture and sell a patented item or to use a process for 20 years.’
D-amor exp
C-accum amor
copyright
Exclusive right to publish and sell a musical, literary, or artistic work during the life of the
creator plus 70 years
franchise/license
Rights to sell a product or service under specified conditions
trademark
A symbol, name, phrase, or jingle identified with a company, product,
or service.
goodwill
Amount by which a company’s value exceeds the value of its individual assets and liabilities (net
assets)
Right-of-use asset (lease)
Rights the lessor grants to the lessee under terms of the lease
Leasehold improvements
improvements to a leased (rented) property such as partitions, painting, and
storefronts.
Research and Development
– expenditures aimed at discovering new products, new processes, or
knowledge.
when to debit machinery
when it is included in the purchasing
when to debit expense
when it is not included in purchasing (repair costs)
