financial&managerial accounting_15e williamshakabettner chap 9

8/14/2019 Financial&managerial accounting_15e williamshakabettner chap 9

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Copyright 2010 by The McGraw-Hill Companies, Inc. AllMcGraw-Hill/Irwin

Plant and IntangiblePlant and Intangible

AssetsAssetsChapter 9


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9-2

Major Categories of Plant AssetsMajor Categories of Plant Assets

L a n d , b u

e q u i p m

f u r n i t u r e ,

L o n g - t e

a s s e t s h

p h y s i c a l

T a n g i b l e

A s s e t s

P a t e n t s ,

t r a d e m a

f r a n c h i s e

N o n c u r r e

w i t h n o p

s u b s t a n

I n t a n g i

A s s e t s

O i l r e s e

t i m b e r ,

m i n e r a

S i t e s a c q

e x t r a c t i n g

r e s o u r c

N a t u r a

R e s o u r


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9-3

Accountable Events in theAccountable Events in the

Lives of Plant AssetsLives of Plant Assets

Acquisition.

Allocation of the acquisition

cost to expense over theassets useful life

(depreciation).Sale or disposal.


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9-4

Asset

price

. . . for getting

the asset to the

desired location.

. . . for getting

the asset to the

desired location.

. . . for getting

the asset ready

for use.

. . . for getting

the asset ready

for use.

Cost

Acquisition of Plant AssetsAcquisition of Plant Assets

=

Reasonable and

necessary costs . . .

+


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9-5

CapitalCapital

ExpenditureExpenditureRevenueRevenue

ExpenditureExpenditure

Any material expenditureAny material expenditure

that will benefit severalthat will benefit several

accounting periods.accounting periods.

ToTo capitalizecapitalize an expenditurean expenditure

means to charge it to anmeans to charge it to an

asset accountasset account..

Expenditure forExpenditure for

ordinary repairsordinary repairs

and maintenanceand maintenance..

ToTo expenseexpense an expenditurean expenditure

means to charge it to anmeans to charge it to an

expense accountexpense account..

Capital Expenditures andCapital Expenditures and

Revenue ExpendituresRevenue Expenditures


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9-6

The allocation of the cost of a plant asset toThe allocation of the cost of a plant asset toexpense in the periods in which services areexpense in the periods in which services are

received from the asset.received from the asset.

Cost of

plant

assets

Balance Sheet

Balance Sheet

Assets:

Plant and

equipment

Assets:

Plant and

equipment

Income Statement

Income Statement

Revenues:

Expenses:

Depreciation

Revenues:

Expenses:

Depreciation

as the services are

received

DepreciationDepreciation


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DepreciationDepreciation

Book Value

Cost Accumulated Depreciation

Depreciation

Contra-asset Represents the portion of an assets

cost that has already been allocatedto expense.

Causes of Depreciation Physical deterioration

Obsolescence


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Cost - Residual Value

Years of Useful Life

Depreciation

Expense per Year=

Straight-Line DepreciationStraight-Line Depreciation


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Depreciation in the early years of an assets

estimated useful life is higher than in later years.

The double-declining balance depreciation

rate is 200% of the straight-line depreciation

rate of (1Useful Life).

The double-declining balance depreciation

rate is 200% of the straight-line depreciation

rate of (1Useful Life).

Declining-Balance MethodDeclining-Balance Method


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So depreciation

is anestimate.

Predicted

salvage value

Revising DepreciationRevising Depreciation

RatesRates

Over the life of an asset, newinformation may come to light

that indicates the original

estimates need to be revised.

Predicted

useful life


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If the cost of an asset

cannot be recoveredthrough future use or

sale, the asset should

be written down to itsnet realizable value.

If the cost of an asset

cannot be recoveredthrough future use or

sale, the asset should

bewritten down

to itsnet realizable value.

Impairment of Plant AssetsImpairment of Plant Assets


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Update depreciation

to the date of disposal.

Recording cash

received (debit).

Removing accumulated

depreciation (debit).

Removing the

asset cost (credit).

Recording a

gain (credit)

or loss (debit).

Disposal of Plant andDisposal of Plant and

EquipmentEquipment

Journalize disposal by:


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If Cash > BV, record a gain (credit).

If Cash < BV, record a loss (debit).

If Cash = BV, no gain or loss.

Disposal of Plant andDisposal of Plant and

EquipmentEquipment

Recording cash

received (debit).

Removing accumulated

depreciation (debit).

Removing the

asset cost (credit).

Recording a

gain (credit)

or loss (debit).


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Noncurrent assets

without physical

substance.

Useful life is

often difficult

to determine.

Usually acquired

for operational

use.

Often provide

exclusive rights

or privileges.

Intangible AssetsIntangible Assets

Characteristics


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Intangible AssetsIntangible Assets

Patents

Copyrights

Leaseholds

LeaseholdImprovements

Goodwill

Trademarks andTrade Names

Record at

current cash

equivalent cost,

includingpurchase price,

legal fees, and

filing fees.


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Depletion is calculated using the

units-of-production method.

Unit depletion rate is calculated as follows:

Total Units of NaturalResource

Cost Residual Value

Depletion of NaturalDepletion of Natural

ResourcesResources


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End of Chapter 9End of Chapter 9

financial&managerial accounting_15e williamshakabettner chap 9

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