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PLANT ASSETS, NATURAL RESOURCES, AND INTANGIBLES

Chapter 10. PLANT ASSETS, NATURAL RESOURCES, AND INTANGIBLES. Actively Used in Operations. Expected to Benefit Future Periods. Called Property, Plant, & Equipment. Plant Assets. C 1. Tangible in Nature. Plant Assets. C 1. Cost Determination. C 1. Purchase price.

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PLANT ASSETS, NATURAL RESOURCES, AND INTANGIBLES

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  1. Chapter 10 PLANT ASSETS, NATURAL RESOURCES, AND INTANGIBLES

  2. Actively Used in Operations Expected to Benefit Future Periods Called Property, Plant, & Equipment Plant Assets C 1 Tangible in Nature

  3. Plant Assets C 1

  4. Cost Determination C 1 Purchaseprice All expenditures needed to prepare the asset for its intended use AcquisitionCost Acquisition cost excludes financing charges andcash discounts

  5. Land C 1 Title insurance premiums Purchaseprice Delinquent taxes Real estate commissions Surveyingfees Title search and transfer fees Land is not depreciable.

  6. Land Improvements C 1 Parking lots, driveways, fences, walks, shrubs, and lighting systems. Depreciateover useful life of improvements.

  7. Buildings C 1 Cost of purchase or construction Title fees Brokeragefees Attorney fees Taxes

  8. Machinery and Equipment C 1 Purchaseprice Taxes Transportation charges Installing,assembling, andtesting Insurance whilein transit

  9. CarMax paid $90,000 cash to acquire a group of items consisting of land appraised at $30,000, land improvements appraised at $10,000, and a building appraised at $60,000. The $90,000 cost will be allocated on the basis of appraised values as shown: Lump-Sum Asset Purchase P 1 The total cost of a combined purchase of land and building is separated on the basis of their relative fair market values.

  10. Balance Sheet Income Statement AcquisitionCost Expense Cost Allocation (Unused) (Used) Depreciation P 1 Depreciation is the process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use.

  11. The calculation of depreciation requires three amounts for each asset: 1. Cost 2. Salvage Value 3. Useful Life Factors in Computing Depreciation P 1

  12. Depreciation for Tax Reporting P 1 Most corporations use the Modified Accelerated Cost Recovery System (MACRS) for tax purposes. MACRS depreciation provides for rapid write-off of an asset’s cost in order to stimulate new investment.

  13. Over the life of an asset, new information may come to light that indicates the original estimates were inaccurate. Change in Estimates for Depreciation C 2 Predicted salvage value Predicteduseful life Depreciationis an estimate

  14. If the amounts involved are not material, most companies expense the item. Additional Expenditures C 3

  15. Revenue and Capital Expenditures C 3

  16. End of Chapter 10

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