Chapter 8 Accounting

plant assets

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

record purchase of plant asset

DR Plant Asset; CR Cash

Land

purchase price + closing costs + past unpaid property taxes + liens assumed/paid + grading/clearing + demolition of old structures

land improvement cost

cost = all costs to ready for intended use

buildings cost

purchase price + closing costs + repairs + remodel to get ready for intended use

machinery/equipment/furniture/fixtures cost

purchase price + sales tax + freight-in + insurance during transit + installation + assembly + testing

lump-sum purchase

allocate the cost of the purchase among the different assets based on their relative market values

depreciation JE

DR Depreciation Expense, CR Accumulated Depreciation

depreciation

process of allocating the cost of a plant asset over its useful life

three factors to compute depreciation

1. cost

2. estimated useful life

3. estimated salvage value

Straight Line Method

(cost - salvage)/useful life in years * months owned/12 months

Units of Production Method

(cost - salvage)/useful life (units) * units used in period

Double-Declining Balance Method

2/useful life (years) beginning book value * months owned/12

straight line

same depreciation expense each full year

units of activity

depreciation expense proportional to asset use

declining balance

accelerated depreciation method where more depreciation expense is recorded in the early years of an asset’s life than the straight line approach

revising depreciation (straight line)

new depreciation = (remaining book value = updated salvage)/remaining useful life

disposal

DR accumulated Depreciation

CR asset account

*plug in JE is gain (credit) or loss (debit)

ordinary repairs

DR repair and maintenance expense

CR cash

additions and improvements

DR Plant Asset

CR cash

natural resource purchase

DR specific nature resource

CR cash or payable

depletion expense

DR depletion expense

CR accumulated depreciation

depletion expense calculation

(cost - salvage value)/useful life (units) * units extracted & sold

plant assets in extracting nature resource

depreciated using UOP method in same proportion depletion is computed on NR

“limited life” intangible Assets

DR Amortization Expense

CR Accumulated Amortization

types of intangible assets

patents, copyrights, trademarks, franchises, licenses, goodwill