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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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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
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