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Chapter 9 Long-Lived Assets (Fixed Assets)

Chapter 9 Long-Lived Assets (Fixed Assets). April 30, 2012. Property, Plant and Equipement (P.P.E). Three characteristics Four Classes. Characteristics. Have physical substance Used in the operation of the business Not intended for the sale to customers. Classes. Land Land Improvements

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Chapter 9 Long-Lived Assets (Fixed Assets)

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  1. Chapter 9Long-Lived Assets (Fixed Assets) April 30, 2012

  2. Property, Plant and Equipement (P.P.E) • Three characteristics • Four Classes

  3. Characteristics Have physical substance Used in the operation of the business Not intended for the sale to customers

  4. Classes Land Land Improvements Buildings Equipment

  5. Determining Cost

  6. Cost Principle P.P.E. must be recorded at cost

  7. Determining Cost Includes costs involved with acquiring P.P.E. and making it ready for use

  8. Machinery Example • Costs involved: • Purchase price • Testing • Installation • Freight

  9. Operating Vs. Capital Expenditures Operating Expenditures benefit only the current period Capital Expenditures benefit future periods

  10. P.P.E. not expensed P.P.E. is capitalized (recorded as assets) instead of expenses because theybenefit future periods

  11. Land Costs include: Purchase price Closing costs (legal Fees, surveys, etc.) Perparation costs (costs required to prepare the land for use) P 457 Example

  12. Land Improvements Structural addtions made to land (Fence, driveway, etc.)

  13. Land Vs. Land Improvements • Land • Has an unlimited useful life • Does not amortize (depreciate in value) • Land Improvements • Has a limited useful life • Amortizes • Expenses to maintain or replace • Recorded separately from Land

  14. Building All costs related to the purchase or construction of a building (Purchase price, closing fees, remodeling, roof replacement etc.)

  15. New Building Costs • Contract price • Architect fees • Building permits • Excavation • Interest (related to construction)

  16. Equipment Can include items such as: Delivery Equipment Office equipment Furniture Machinery Vehicles etc. Example page 458

  17. Building Interest • Only included: • If significant amount of time is required to complete construction • While the building is under construction (after completion, the interest is expensed)

  18. Equipment Cost • Cost can include: • Purchase price • Freight charges • Insurance (For transportation) • Assembly • Installation • Testing

  19. Basket Purchase(lump sum purchase) Occurs when a combination of Property, plant and/or equipment are purchased for a single price. *See page 459 for example

  20. Basket Purchase Appraised values determine the percentage that each item costs

  21. Your Task: Brief Exercises 1-4 Completed for homework if not completed in class

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