Accounting for Plant Asset Expenditures

These flashcards cover key concepts related to accounting for plant asset expenditures, including definitions, principles, and allocation of costs.

What are plant assets also called?

Plant assets are also known as property, plant, and equipment.

What is the historical cost principle in accounting?

The historical cost principle requires that companies record plant assets at cost.

What does the cost of plant assets include?

The cost includes all expenditures necessary to acquire an asset and make it ready for its intended use.

What are the components that make up the cost of land?

The cost of land includes the cash purchase price, closing costs, brokers' commissions, and accrued property taxes and other liens.

What is included in the cost of buildings?

The cost of buildings includes the purchase price, closing costs, and real estate broker's commissions.

What type of expenditures are capitalized for long-term assets?

Future expenditures that increase the long-term life of the asset are capitalized.

If Brown Inc. purchased land, building, and equipment for $400,000, how is this cost allocated based on market values?

The allocation is as follows: $120,000 for land, $200,000 for building, and $80,000 for equipment.

How do you calculate the allocation of costs in a basket purchase?

The allocation is calculated based on the proportion of each asset's market value to the total market value of all assets.

What is the formula to find the proportion of the cost for each asset in a basket purchase?

Proportion = Market Value of Asset / Total Market Value of All Assets.

When are future expenditures for long-term assets not capitalized?

Future expenditures are not capitalized if they do not increase the long-term life of the asset.