chapter 8 reading Flashcards
plant assets
tangible assets used in company operations that have a useful life of more than one accounting period
plant assets are commonly used in
operations
4 issues accounting for plant assets
1) computing costs of plant assets
2) allocating costs
3) accounting for subsequent expenditures to plant assets
4) recording disposal
plant assets are recorded when
recorded at cost when acquired
cost
all expenditures necessary to get an asset in place and ready for use
to be recorded as part of the cost of plant asset, expenditure must be
-normal
-reasonable
-necessary in preparing it for its intended use
cost of plant assets includes
purchase price
-taxes
-transportation charges
-insurance while in transit
building account
cost if oyrchasing or constructing building used in operations
construting building cost
materials, labor, and indirect overhead costs
overhead
heat, lighting, power
land improvements
additions to land and have limited useful lives like fences and parking lots
land cost
cost necessary to make it ready for intended use (cost of removing also charged to land account)
cash purcase of land improvements
land improvement debit
cash credit
plant asset someties purchased as group in single transaction for
lump sum price
what is group order of plant assets called
lumpsum purchase or bulk purchase
deprecitation
process of allocating cost of plant asset to expense while in use
factors that determine depreciation
1)cost
2)salvage value
3)useful life
salvage value
estimate of assets value at end of its useful life
useful life
length of time plan asset is used in companys operation
is service life or useful life longer
useful
inadequacy
inability of plant asset to meet its demands
obsolesence
process of becoming outdated/no longer used
straight line depreciation
charges the same amount for each period of the asset’s useful life
straight line depreciation process
1) compute depreciable cost
2)divde depreciable cost by number of accounting periods in assets useful life (cost-salvage value/useful lifes in period)
depreciable cost formula
assets total cost - salvage value
units of production depreciation
charges a varying amount for each period depending on assets usage
process of units of production depreciation
1) depreciation per unit
2) depreciation expense (depreciation per unit x units produced in period)
revenue expenditures
cost that do not materially increase the plant assets life or capabilities
capital expenditures
cost of plant assets that provide benefits for longer than current period
ordinary reapairs
expenditures to keep assets in good operating condition
betterments
expense that makes plant asset more productive
natural resources
assets that are physically consumed when used lile timber
depletion
process of allocating cost f natural resoruces to period when used
intangible assets
nonphysical assets used in operations that give companies a competitive advantage
indefinite life
no legal or economic reason matters that limits its useful life
