Accounting 1 exam - 3

plant assets

are resources that have physical substance (a definite size and shape), are used in the operations of a business, and are not intended for sale to customers

Land

Land is often used as a building site for a manufacturing plant or office

Buildings

Buildings are facilities used in operations, such as stores, offices, factories,

warehouses, and airplane hangars.

equipment

Equipment includes assets used in operations, such as store check-out

counters, office furniture, factory machinery, delivery trucks, and airplanes

Historical cost principle

core accounting principle that dictates the value at which the assets are recorded on a company’s balance sheet

Determining the Cost of Plant assets

The historical cost principle requires that

companies record plant assets at cost.

depreciation

is the process of allocating to expense the cost of a plant asset over its useful

(service) life in a rational and systemic manner.

depreciation of plant assets

Land improvements, Buildings, and equipment

Useful life

an estimate of the expected productive life, also called service life, of

the asset.

salvage value

an estimate of the asset’s value at the end of its useful life

straight line deprecation

Under the straight-line method, an equal amount of depreciation

expense is recorded each year of the asset’s useful life

Declining balance

The declining-balance method computes depreciation

expense using a constant rate applied to a declining book value

Units-Of-Activity

Under the units-of-activity method, the life of an asset is expressed in

terms of the total units of production or the use expected from the asset

Plant Asset Disposals---

Companies dispose of plant assets that are no longer useful to them