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Plant and Intangible Plant and Intangible AssetsAssetsotaleem.blogspot.comotaleem.blogspot.comfor more presentation(follow me)for more presentation(follow me)

Chapter 9

9-2

Major Categories of Plant AssetsMajor Categories of Plant Assets

L an d , b u ild in g s ,eq u ip m en t,

fu rn itu re , fixtu res .

L on g -te rmas s e ts h avin g

p h ys ic a l s u b s tan ce .

T angible PlantAssets

P aten ts , cop yrig h ts ,trad em arks ,

fran ch is es , g ood w ill.

N on c u rren t ass e tsw ith n o p h ys ica l

su b s tan c e .

IntangibleAssets

O il rese rves ,tim b er, o th e r

m in era ls .

S ites ac q u ired fo rextrac t in g va lu ab le

res ou rces .

NaturalResources

9-3

Accountable Events in theAccountable Events in theLives of Plant AssetsLives of Plant AssetsAcquisition.Allocation of the acquisition

cost to expense over the asset’s useful life (depreciation).

Sale or disposal.

9-4

Asset price

. . . for getting the asset to the

desired location.

. . . for getting the asset ready

for use.

Cost

Acquisition of Plant AssetsAcquisition of Plant Assets

=

Reasonable and necessary costs . . .

+

9-5

CapitalCapitalExpenditureExpenditure

RevenueRevenueExpenditureExpenditure

Any material expenditureAny material expenditurethat will benefit severalthat will benefit several

accounting periods.accounting periods.

To To capitalizecapitalize an expenditure an expendituremeans to charge it to anmeans to charge it to an

asset accountasset account..

Expenditure forExpenditure forordinary repairsordinary repairs

and maintenanceand maintenance..

ToTo expense expense an expenditure an expendituremeans to charge it to anmeans to charge it to an

expense accountexpense account..

Capital Expenditures and Capital Expenditures and Revenue ExpendituresRevenue Expenditures

9-6

The allocation of the cost of a plant asset to The allocation of the cost of a plant asset to expense in the periods in which services are expense in the periods in which services are

received from the asset.received from the asset.

Cost of plant

assets

Balance Sheet

Assets: Plant and equipment

Income Statement

Revenues:Expenses: Depreciation

as the services are received

DepreciationDepreciation

9-7

DepreciationDepreciationBook Value

Cost – Accumulated DepreciationDepreciation

Contra-asset Represents the portion of an asset’s

cost that has already been allocated to expense.

Causes of Depreciation Physical deterioration Obsolescence

9-8

Cost - Residual ValueYears of Useful Life

DepreciationExpense per Year

=

Straight-Line DepreciationStraight-Line Depreciation

9-9

Depreciation in the early years of an asset’s estimated useful life is higher than in later years.

The double-declining balance depreciation rate is 200% of the straight-line depreciation

rate of (1÷Useful Life).

Declining-Balance MethodDeclining-Balance Method

9-10

So depreciationis an estimate.

Predicted salvage value

Revising Depreciation Revising Depreciation RatesRates

Over the life of an asset, new information may come to light

that indicates the original estimates need to be revised.

Predicteduseful life

9-11

If the cost of an asset cannot be recovered through future use or sale, the asset should be written down to its net realizable value.

Impairment of Plant AssetsImpairment of Plant Assets

9-12

Update depreciation to the date of disposal.

Recording cashreceived (debit).

Removing accumulateddepreciation (debit).

Removing the asset cost (credit).

Recording again (credit)

or loss (debit).

Disposal of Plant and Disposal of Plant and EquipmentEquipment

Journalize disposal by:

9-13

If Cash > BV, record a gain (credit).If Cash < BV, record a loss (debit).If Cash = BV, no gain or loss.

Disposal of Plant and Disposal of Plant and EquipmentEquipment

Recording cashreceived (debit).

Removing accumulateddepreciation (debit).

Removing the asset cost (credit).

Recording again (credit)

or loss (debit).

9-14

Noncurrent assetswithout physical

substance.

Useful life isoften difficultto determine.

Usually acquired for operational

use.

Often provideexclusive rights

or privileges.

Intangible AssetsIntangible Assets

Characteristics

9-15

Intangible AssetsIntangible Assets Patents Copyrights Leaseholds Leasehold

Improvements Goodwill Trademarks and

Trade Names

Record at current cash

equivalent cost, including

purchase price, legal fees, and

filing fees.

9-16

Depletion is calculated using theunits-of-production method.

Unit depletion rate is calculated as follows:

Total Units of Natural Resource

Cost – Residual Value

Depletion of Natural Depletion of Natural ResourcesResources

9-17

End of Chapter 9End of Chapter 9