Slide 9-1 Chapter 9 Plant Assets and depreciation Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc,, 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 9-1 Irwin/McGraw-Hill Chapter 9 Plant Assets and Depreciation
Slide 9-2 Plant assets Long-lived assets acquired for use in business operations Similar to long-term prepaid expenses Date Description Credit As years pass, and the The cost of plant assets services are used. the is the advance purchase cost is transferred to of services depreciation expense. Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 9-2 Irwin/McGraw-Hill Plant Assets Long-lived assets acquired for use in business operations. Similar to long-term prepaid expenses The cost of plant assets is the advance purchase of services. Date Description Debit Credit As years pass, and the services are used, the cost is transferred to depreciation expense
Slide 9-3 Major Categories of Plant Assets Tangible Plant Intangible Natural Assets Assets Resources Long-term Noncurrent assets Sites acquired for assets having with no physical extracting valuable physical substance. substance resources Land, buildings Patents, copyrights Oil reserves equipment, trademarks timber. other furniture. fixtures franchises, goodwill minerals Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 9-3 Irwin/McGraw-Hill Land, buildings, equipment, furniture, fixtures. Long-term assets having physical substance. Tangible Plant Assets Patents, copyrights, trademarks, franchises, goodwill. Noncurrent assets with no physical substance. Intangible Assets Oil reserves, timber, other minerals. Sites acquired for extracting valuable resources. Natural Resources Major Categories of Plant Assets
Slide 9-4 Accountable events ① Acquisition ② Allocation of the acquisition cost to expense over the asset担 useful life (depreciation) 3Sale or disposal Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 9-4 Irwin/McGraw-Hill Accountable Events Acquisition. Allocation of the acquisition cost to expense over the asset抯 useful life (depreciation). Sale or disposal
Slide 9-5 Acquisition of Plant Assets Asset price Cost Reasonable and necessary costs for getting for getting the asset to the the asset ready desired location for use Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 9-5 Irwin/McGraw-Hill Acquisition of Plant Assets Asset price Reasonable and necessary costs . . . . . . for getting the asset to the desired location. . . . for getting the asset ready for use. Cost
Slide ●● 9-6 Determining cost Example On May 4, Heat Co., an Ohio maker of stoves, buys a new machine from a Texas company The new machine has a price of $52, 000. Sales tax was computed at 8% Heat Co pays $500 shipping cost to get the machine to Ohio. After the machine arrives set-up costs of $1, 300 are incurred, along with $4, 000 in testing costs. Compute the cost of Heat Co 's new machine Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 9-6 Irwin/McGraw-Hill Determining Cost Example On May 4, Heat Co., an Ohio maker of stoves, buys a new machine from a Texas company. The new machine has a price of $52,000. Sales tax was computed at 8%. Heat Co. pays $500 shipping cost to get the machine to Ohio. After the machine arrives, set-up costs of $1,300 are incurred, along with $4,000 in testing costs. Compute the cost of Heat Co.’s new machine
Slide ●● 9-7 Determining cost Example List price $52,000 Sales tax 8% 4,160 Transportation cost 500 Set-up 1.300 Testing 4,000 Total cost to heat co $61,960 Date Description Debit Credit Prepare the journal entry Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 9-7 Irwin/McGraw-Hill Determining Cost Example List price $ 52,000 Sales tax @ 8% 4,160 Transportation cost 500 Set-up 1,300 Testing 4,000 Total cost to Heat Co. $ 61,960 Date Description Debit Credit Prepare the journal entry
Slide ●● 9-8 Determining cost Example List price $52,000 Sales tax 8% 4,160 Transportation cost 500 Set-up 1.300 Testing 4,000 Total cost to heat co $61,960 Date Description De bit‖ Credit 4-May New Machine 61960 Cash 61.960 Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 9-8 Irwin/McGraw-Hill Determining Cost Example List price $ 52,000 Sales tax @ 8% 4,160 Transportation cost 500 Set-up 1,300 Testing 4,000 Total cost to Heat Co. $ 61,960 Date Description Debit Credit 4-May New Machine 61,960 Cash 61,960
Slide 9-9 Special Considerations Cost includes real estate Land commissions, escrow fees, legal fees, clearing and grading the property. Improvements to land Land such as driveways, Improvements fences, and landscaping are recorded separately. Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 9-9 Irwin/McGraw-Hill Special Considerations Improvements to land such as driveways, fences, and landscaping are recorded separately. Land Improvements Cost includes real estate commissions, escrow fees, legal fees, clearing and grading the property. Land
Slide 9 Special Considerations Repairs made prior to the Buildings building being put in use are considered part of the building担cost Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc,, 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 9-10 Irwin/McGraw-Hill Special Considerations Repairs made prior to the building being put in use are considered part of the building抯 cost. Buildings