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    Plant Asstets

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    The document discusses plant assets including defining them, determining their cost, and calculating depreciation. Plant assets are resources used in business operations but not for sale that are expected to provide long-term benefit. Their cost includes all expenditures to acquire and prepare the asset for use. Depreciation is allocated over the asset's useful life using methods like straight-line and reflects declining usefulness from wear and tear.

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    Plant Asstets

    Uploaded by

    bsamsonworku
    13 views9 pages
    The document discusses plant assets including defining them, determining their cost, and calculating depreciation. Plant assets are resources used in business operations but not for sale that are expected to provide long-term benefit. Their cost includes all expenditures to acquire and prepare the asset for use. Depreciation is allocated over the asset's useful life using methods like straight-line and reflects declining usefulness from wear and tear.

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    Lecture Note

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    The document discusses plant assets including defining them, determining their cost, and calculating depreciation. Plant assets are resources used in business operations but not for sale that are expected to provide long-term benefit. Their cost includes all expenditures to acquire and prepare the asset for use. Depreciation is allocated over the asset's useful life using methods like straight-line and reflects declining usefulness from wear and tear.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    13 views9 pages

    Plant Asstets

    Uploaded by

    bsamsonworku
    The document discusses plant assets including defining them, determining their cost, and calculating depreciation. Plant assets are resources used in business operations but not for sale that are expected to provide long-term benefit. Their cost includes all expenditures to acquire and prepare the asset for use. Depreciation is allocated over the asset's useful life using methods like straight-line and reflects declining usefulness from wear and tear.

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    of 9

    Chapter 2 Plant Assets

    By Samson Worku
    (Ph.D. Candidate, MBA, MA, BA, B.Sc., COC certified)

    JIGDAN COLLEGE-DEPARTMENT OF ACCOUNTING AND FINANCE 1


    Study Objectives
    1. Define plant assets
    2. Determine the cost of plant assets
    3. Calculate depreciation of plant assets
    3

    JIGDAN COLLEGE-DEPARTMENT OF ACCOUNTING AND FINANCE 2


    Defining Plant Assets

    Plant assets are resources that have physical


    substance (a definite size and shape), are used in the
    operations of a business, are not intended for sale to
    customers, and are expected to to provide service to
    the company.

    Examples of plant assets include: Equipment,


    machine, buildings, land etc.

    Plant assets are also referred as property, plant and Equipment,;


    plant and equipment; plant fixed assets.

    JIGDAN COLLEGE-DEPARTMENT OF ACCOUNTING AND FINANCE 3


    Cost of Plant Asset

    The historical cost principle requires that companies record


    plant assets at cost. The cost of a plant asset consists of all
    expenditures necessary to acquire an asset and make it ready for
    its intended use.
    5

    JIGDAN COLLEGE-DEPARTMENT OF ACCOUNTING AND FINANCE 4


    Depreciation of Plant Assets
    Depreciation refers to the decline in the usefulness of plant
    assets. It could be from wear and tear or obsolescence.
    Accounting for depreciation involves the calculation of
    depreciation expense and recording it.
    There are four methods of calculation depreciation. They
    include:
     Straight line method
     Units of production method
     Sum-of-years-digit method
     Double declining balance method
    JIGDAN COLLEGE-DEPARTMENT OF ACCOUNTING AND FINANCE 5
    Depreciation of plant assets is recorded by debiting
    Depreciation expense and crediting Accumulated
    Depreciation.

    JIGDAN COLLEGE-DEPARTMENT OF ACCOUNTING AND FINANCE 6


    Financial Statement Presentation

     Presentation
    Statement of Financial Position–Plant assets and
    accumulated are classified under Property, Plant and
    Equipment.
    Income Statement – Depreciation expense
    There also should be a disclosure of the
    depreciation method used in the financial
    statements.

    JIGDAN COLLEGE-DEPARTMENT OF ACCOUNTING AND FINANCE 7


    Assignment 1.2
    1. Which of these is a plant asset?
    A. Final products
    B. People
    C. Land
    D. Raw materials
    2. All plant assets (fixed assets) must be depreciated for accounting purposes.
    A True B. False

    3. Once cost is established for a plant asset, it becomes the basis of accounting for the asset unless the asset appreciates in value,
    in which case, the market value becomes the basis for accountability. A. True B. False
    4. Recording depreciation on plant assets affects the balance sheet and the income statement.
    5. In calculating depreciation, both plant asset cost and useful life are based on estimates.
    6. The cost of a purchased building includes all of the following except
    A. closing costs.
    B. real estate broker's commission.
    C. remodeling costs.
    D. All of these are included.
    7. The book value of an asset is equal to the
    A. asset's market value less its historical cost.
    B. blue book value relied on by secondary markets.
    C. replacement cost of the asset.
    D. asset's cost less accumulated depreciation.
    8. Depreciation is a process of
    A. asset devaluation.
    B. cost accumulation.
    C. cost allocation.
    D. asset valuation
    JIGDAN COLLEGE-DEPARTMENT OF ACCOUNTING AND FINANCE 8
    9. Recording depreciation each period is necessary in accordance with the
    A. going concern principle.
    B. cost principle.
    C. matching principle.
    D. asset valuation principle
    10. Equipment was purchased for $75,000. Freight charges amounted to $3,500 and there was a cost of $10,000 for building a
    foundation and installing the equipment. It is estimated that the equipment will have a $15,000 salvage value at the end of its 5-
    year useful life. Depreciation expense each year using the straight-line method will be
    A. $17,700.
    B. $14,700.
    C. $12,300.
    D. $12,000.

    Problem
    Pink Company acquires LAND at a cash of $ 2,000,000. The
    property contains an old warehouse that is razed at a net cost
    of $ 60,000 ($75,000 in costs less $15,000 proceeds from
    salvaged material). Additional expenditures are the
    attorney’s fee $10,000, and the real estate broker’s
    commission, $ 80,000.
    Required: Determine the amount to be reported as the cost
    of the land.
    JIGDAN COLLEGE-DEPARTMENT OF ACCOUNTING AND FINANCE 9

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