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Lesson12CapitalAssets1SchoolofManagementHUSTOutlineDescribethemajorcharacteristicsofproperty,plant,andequipmentAccountingforproperty,plant,andequipment:Acquisition&Disposition&Depreciation(ordepletion)&ImpairmentsDescribethecharacteristicsofintangibleassetsAccountingforIntangibleassets:Acquisition&ImpairmentsReporting&analysisofnon-currentassets2SchoolofManagementHUSTp131p131Long-termAssetsLong-termassetsaretheassetsthatareexpectedtobeusedorholdforlongerthanonefutureyear,including:−Fixedassets(Plantassets)−Intangibleassets−Long-termInvestmentsNoncurrentAssetsLong-livedassets3SchoolofManagementHUSTTypesofPlantAssetsLandBuildingsMachineryandEquipmentConstructiononprogressCapitalleasesProperty,plantandequipment(PP&E)4SchoolofManagementHUST§12.1AccountingforPlantAssetsPlantassetsinclude:land,building,structuresandequipmentmachinery,furnitureandtoolsDistinguishingcharacteristics:TheyareusedinoperationsandnotheldforresaleTheyarelongtermandaresubjecttodepreciation(exceptland)Theyaretangible5SchoolofManagementHUSTpp310-331,p337pp310-331,p337PlantAssets:PrimaryAccountingIssuesRecordwhenitisacquired(Acquisition)Amortizeduringtheperiodwhenitisused(Depreciation)Reportattheendofaccountingperiodwhenitisused(Impairments)Recordwhenitissold(Disposition)–Historycost–Depreciation–Lowerofbookvalueormarketvalue–Recognizetheunrealizedlossontheplantassets–Carryingamount,GainorLossonsaleofplantasset6SchoolofManagementHUST12.1.1AcquisitionofPlantAssets–theCostofPlantAssetsPlantassetsareinitiallyvaluedathistoricalcost.theasset’scashorcashequivalentprice,andthecostofreadyingtheassetforuseWhatgoesintoaplantassetcostwhenitisacquired?Purchaseprice,freightcosts,andinstallationcosts.Applicabletaxes,PurchasecommissionAllotheramountspaidtoacquiredtheassetandtoreadyitforitsintendeduse.Thecostofanyassetisthesumofallthecostsincurredtobringtheassetstoitsintendeduse.7SchoolofManagementHUSTAcquisitionofPlantAssetsbyPurchasing–theCostofLandWhatamountshouldberecordedasthecostofthisland?LandCashpriceofproperty$100,000Netremovalcostofwarehouse6,000Attorney’sfee1,000Realestatebroker’scommission8,000Costofland$115,0008SchoolofManagementHUSTOthercostsnecessarytomakelandreadyforuse.Closingcosts,brokercommissions,accruedtaxes,assumedliens,etc.PurchasepriceCostsdebitedtolandaccountAcquisitionofPlantAssetsbyPurchasing–theCostofLandaSaleofsalvagedmaterialsreducescost9SchoolofManagementHUSTAcquisitionofPlantAssets–theCostofLandImprovementsLightingLandimprovementsarestructuraladditionsmadetoland,suchas:1parkinglots,2fencing,3lighting4sprinklers,etc.ParkingLotaImprovementswithlimitedlivesarerecordedasLandImprovements(andnotasLand)10SchoolofManagementHUSTAcquisitionofPlantAssets–theCostofBuildingsInterestLiensassumedPermits&excavationBrokerscommissionsArchitectsfeesClosingcostsContractpricePurchasepriceConstructedPurchasedThecostofabuildingdependsonwhetheritispurchasedorconstructed.11SchoolofManagementHUSTAcquisitionofPlantAssetsbyPurchasing–theCostofEquipmentErinDanielleCo.purchasedequipmentandincurredthesecosts:1.Cashprice$24,0002.Salestaxes1,2003.Insuranceduringtransit2004.Installationandtesting400Whatamountshouldberecordedasthecostofthisequipment?$25,80012SchoolofManagementHUSTAcquisitionofPlantAssetsbyPurchasing–theCostofEquipmentTestingInstallationAssemblyTransitinsuranceFreightchargesSalestaxPurchasepriceOtherongoingexpensesareexpensedasincurred13SchoolofManagementHUSTExample:AcquisitionofPlantAssetsbyPurchasing–theCostofEquipment&JournalEntryFactoryMachineryCashprice$50,000Salestaxes3,000Insuranceduringshipping500Installationandtesting1,000Costoffactorymachinery$54,500Entrytorecordthecostofmachinery&relatedexpenditures:FactoryMachinery54,500Cash54,50014SchoolofManagementHUSTExample:AcquisitionofPlantAssetsbyPurchasing–theCostofTruck&JournalEntryDeliveryTruckCashprice$22,000Salestaxes1,320Paintingandlettering500Costofdeliverytruck$23,820Licensefee80PrepaidInsurance1600AccountTitlesandExplanationDebitCreditDeliveryTruckLicenseExpensePrepaidInsuranceCash(Torecordpurchaseofdeliverytruckandrelatedexpenditures)23,82080160025,50015SchoolofManagementHUSTP316P31612.1.2DepreciationofPlantAssetsTheallocationofanasset’scosttoexpenseoveritsusefullifeMatchingprincipleRevenueExpendituresvs.CapitalExpendituresWhenanentitymakesanexpenditure,thebenefitsfromthegoodsorservicesacquiredeitherareobtainedinthecurrentperiodorareexpectedtobeobtainedinfutureperiod.RevenueExpendituresCapitalExpendituresPeriodCostsLong-livedAssets16SchoolofManagementHUSTLong-livedAssetsandTheirAmortizationAmortizationAssetsAccountsCashorPayablesXXExpenditurescostincurredBenefitsbeyondthisperiod?NYYYXXXXZZZZYYRetainedEarningsAcapitalassetscanusefullybethoughtofasabundleofservices.Thecostoftheseservicesshouldbematchedwiththerevenuesthatobtainedfromitsuseinthesefutureperiod.17SchoolofManagementHUSTLong-livedAssetsandTheirAmortizationInshort,Allcosts(expenditures)eventuallybecomeexpenses,butcapitalassets’costs(thecapitalexpenditure)dosooveraperiodofitsservicelife,whereasperiodcosts(revenueexpenditure)be