PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA
Plant and Intangible Plant and Intangible
Assets Assets
Chapter 9
Plant assets represent a bundle of future services, and can be thought of as long-
term prepaid expenses.
Plant assets represent a bundle of future services, and can be thought of as long-
term prepaid expenses.
The cost of plant assets is the advance purchase of services.
As years pass, and the services are used, the cost is
transferred to depreciation expense.
Plant Assets as a “Stream Plant Assets as a “Stream
of Future Services”
of Future Services”
Major Categories of Plant Assets Major Categories of Plant Assets
L a n d , b u i l d i n g s , e q u i p m e n t , f u r n i t u r e , f i x t u r e s .
L o n g - t e r m a s s e t s h a v i n g p h y s i c a l s u b s t a n c e .
T a n g i b l e P l a n t A s s e t s
P a t e n t s , c o p y r i g h t s , t r a d e m a r k s ,
f r a n c h i s e s , g o o d w i l l.
N o n c u r r e n t a s s e t s w i t h n o p h y s i c a l
s u b s t a n c e . I n t a n g i b l e
A s s e t s
O i l r e s e r v e s , t im b e r , o t h e r
m i n e r a l s .
S i t e s a c q u i r e d f o r e x t r a c t i n g v a l u a b l e
r e s o u r c e s . N a t u r a l R e s o u r c e s
Accountable Events in the Accountable Events in the
Lives of Plant Assets Lives of Plant Assets
1. Acquisition.
2. Allocation of the acquisition cost to expense over the
asset’s useful life (depreciation).
3. Sale or disposal.
Asset price 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 Cost
Acquisition of Plant Assets Acquisition of Plant Assets
=
Reasonable and necessary costs . . .
Reasonable and necessary costs . . .
+
Improvements to land such as driveways, fences, and landscaping are recorded separately.
Improvements to land such as driveways, fences, and landscaping are recorded separately.
Cost includes real estate commissions, escrow fees, legal fees, clearing and grading the property.
Cost includes real estate commissions, escrow fees, legal fees, clearing and grading the property.
Land
Improvements Land
Improvements LandLand
Special Considerations
Special Considerations
Costs incurred for remodeling prior to the building being put in use are considered part of the
building’s cost.
Costs incurred for remodeling prior to the building being put in use are considered part of the
building’s cost.
Buildings Buildings
Special Considerations Special Considerations
Equipment Equipment
Related interest,
insurance, and property taxes are treated as expenses of the current
period.
Related interest,
insurance, and property taxes are treated as expenses of the current
period.
Special Considerations Special Considerations
The allocation is based on
the relative Fair Market Value of each
asset purchased.
The allocation is based on
the relative Fair Market Value of each
asset purchased.
The total cost must be allocated to
separate accounts for
each asset.
The total cost must be allocated to
separate accounts for
each asset.
Allocation of a Lump-Sum Purchase Allocation of a Lump-Sum Purchase
Capital Expenditure
Capital Expenditure
Revenue Expenditure
Revenue Expenditure
Any material expenditure that will benefit several
accounting periods.
Any material expenditure that will benefit several
accounting periods.
To capitalize an expenditure means to charge it to an
asset account.
To capitalize an expenditure means to charge it to an
asset account.
Expenditure for ordinary repairs and maintenance.
Expenditure for ordinary repairs and maintenance.
To expense an expenditure means to charge it to an
expense account.
To expense an expenditure means to charge it to an
expense account.
Capital Expenditures and Capital Expenditures and
Revenue Expenditures
Revenue Expenditures
The allocation of the cost of a plant asset to expense in the periods in which
services are received from the asset.
The allocation of the cost of a plant asset to expense in the periods in which
services are received from the asset.
Purchase cost as
assets purchased
Balance Sheet Balance Sheet
Assets:
Plant and equipment Assets:
Plant and equipment
Income Statement Income Statement
Revenues:
Expenses:
Revenues:
Expenses:
as the services are received
Depreciation
Depreciation
Depreciation Depreciation
Book Value
Cost – Accumulated Depreciation Depreciation
Contra-asset
Represents the portion of an asset’s cost that has already been allocated to expense.
Causes of Depreciation
Physical deterioration
Obsolescence
Cost - Residual Value Years of Useful Life Depreciation
Expense per Year =
Straight-Line Depreciation
Straight-Line Depreciation
Depreciation in the early years of an asset’s estimated useful life is higher than in later years.
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).
The double-declining balance depreciation rate is 200% of the straight-line depreciation
rate of (1÷Useful Life).
Declining-Balance Method
Declining-Balance Method
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.
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 Assets
Impairment of Plant Assets
Update depreciation to the date of disposal.
Update depreciation to the date of disposal.
Recording cash received (debit).
Recording cash received (debit).
Removing accumulated depreciation (debit).
Removing accumulated
depreciation (debit). Removing the asset cost (credit).
Removing the asset cost (credit).
Recording a gain (credit) or loss (debit).
Recording a gain (credit) or loss (debit).
Disposal of Plant and Disposal of Plant and
Equipment Equipment
Journalize disposal by:
Journalize disposal by:
Noncurrent assets without physical
substance.
Noncurrent assets without physical
substance.
Useful life is often difficult to determine.
Useful life is often difficult to determine.
Usually acquired for operational
use.
Usually acquired for operational
use.
Often provide exclusive rights
or privileges.
Often provide exclusive rights
or privileges.
Intangible Assets Intangible Assets
Characteristics Characteristics
Intangible Assets Intangible 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.
