PPE Flashcards
Betterments
Cost of ppe that provides material benefits extending beyond the current period.
They are debited to PPE account and reported on the balance sheet.
Repairs are recorded as an expense
Maintenance are also recorded as an expense
Cost that maintain an asset but do not materially increase the asset life or productive capabilities. They are recorded as expenses and dedicated from revenue in the current periods income statement.
When PPE are acquired and put into service, additional or subsequent expenditure are often incurred
Example of subsequent expenditure are that are classified as betterment include roofing replacement , plant expansion and major overhauls of machinery
What is included in the cost of a PPE asset
All normal and reasonable expenditure necessary to get the asset in place and ready for intended use.
Eg it’s invoice price, less my cash discount for early payment
2 Freight, unpacked and assembling cost
3)Non refundable sales taxes pst
4) All necessary cost of installing and testing the equiptment
The difference between repairs and maintenance expenses and betterment and how they are recorded are?
Betterments represents cost of PPE that provide material benefits extending beyond the current period they are debited to ppe account and us reported to the balance sheet
Repairs are recorded as an expense because it is not considered as a normal part of getting the asset ready for it’s intended use.
Repairs and maintenance expenses are recorded as expenses and deducted from revenue in the current period income statement
Land purchase with removal of a building
The total amount included in the cost of land is.
The purchase price is capitalized under the land account
Any cost incurred in removing the old building, less the amount recovered through the sale salvaged materials
To illustrate a company bought land for a retail store for 170.000.This land contains an old service garage that is removed at a bet cost of 15,000(20.000in cost-5000 proceeds from salvage materials). Additional closing cost totalled $10.000 and consisted of brokerage fees (8.000), legal fees ($1,500) and title cost (500). The cost of the land is $195.000
Net cash price of land. $170.000+
Netcost of service garage removal$15.000+
Closing cost $10.000
Total cost of land= $195.000
Land improvement
Because land has an unlimited life and is not consumed when used, it is not subject to deprecation
Land improvement include items that have limited useful life.
1)parking lot surfaces
2)Driveways
3)fences
4)lighting systems
Buildings
A building account is charged for cost of purchasing or constructing a building when it is used in operation
Eg) purchase price
Brock age fees
Taxes
Title feed
Machinery and equipment
The cost of machinery and equipment consists of all cost normal and nessary to purchase it and prepare it for it’s intended use
Eg) purchase price
Non refundible sales tax
Transportation charges
Insurance while in transit
Cost of Installing
Lump sum asset purchase is called a basket purchase
Is a purchase of ppe in a group with a single transaction for a lump sum price
To illustrate
David Tea paid $630.000 cash to acquire land appraised at $210.000.land improvement appraised at $70.000
And a building appraised at $420.000. The 630.000 cost was allocated on the based of appraiser values as shown
Three factors that determine deprecition is?
Cost, salvage value, and useful life
What is salvage value?
Salvage value is an estimate of the asset value at the end of it’s benefit period
What is useful service life?
The length of time an asset is productively used.
The straight line method is
Cost- salvage value÷by useful life
