Plant and Intangible Assets
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Transcript of Plant and Intangible Assets
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
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