Ch 9.1 PPE Flashcards
3 charcteristics of PPE
1) They are tangible long lived resources under company control
2) companies use assets to produce g/s or OTHER revenue generation
3) assets are not sold to customers
main diff between current assets and nca
provide economic beefits over many years
synonynm for nca
fixed assets
at what value do companies record PPE on financial statmeents?
at cost!
what does cost of ppe include
1) the purchase price (+ certain non-refundable taxes and duties - discounts or rebates)
2) expenses needed to bring asset to location and get it ready for use
3) estimates of the cost of any future expenses related to dismantling, removing, or restoring asset at END of useful life
which costs do companies include in PPE
the costs that will beenfit only the current periods “operating expenditures”
In general, companies expense costs that will benefit only the current period. Such costs are operating expenditures. Companies capitalize (include) costs thatwill benefit future periods in a non-current asset account relating to property, plant, or equipment. These are capital expenditures.
In general, companies expense costs that will benefit only the current period. Such costs are operating expenditures. Companies capitalize (include) costs thatwill benefit future periods in a non-current asset account relating to property, plant, or equipment. These are capital expenditures.
operating expenditures
expenses that benefit only this period,
they are chraged against revenues as an expense acc
capital expenditures
expenses that benefit future periods, recorded as long lived assets
what are asset retirement costs
costs to ddismantle, remove, or restore a PPE at end of useful life
what do you do with asset retirmenet costs
you add them to the cost of the asset
what are 4 classificaitons of PPE
1) LAND
2) LAND IMPROVEMENTS
3) PROPERTY
4) EQUIPMENT
what is land
building site
what is land improvements
driveways parking lots fences and udnerground sprinklers
what is buidlings
stores, offices, plants, warehusoses
what is equioment
vehicles, computers, furnityure, machienry
what is included in the cost of land
all costs incurred to get the land ready for use
1) cash price
2) closing costs (survey, title search, legal)
3) cost for prepping land (Clearig, draining, excavvaating, grading)
4) Cost to demolish and remove things LESS proceeds from salvaged materials
Companies will treat recurring expenditures incurred after purchasing the land as operating expenses because they only benefit the current year.
such as the annual property taxes.
!!!
What is journal entry to record purchase of Land
Dr Land
Cr Cash
What are land improvements
structrual additions made to a property
q
do land improvements decline in value over time
yes! they need maintenacne and one day eventual replacement
Some people confuse the cost to get land ready for its intended use with land improvements. Land improvements usually occurafter the land is acquired, and wecan distinguish these improvementsfrom the land itself.
why is land and land improvements separate
bc land doesnt depreciate but land improvements do