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OLEMISS / Accounting / ACCT 201 / What are the main issues in accounting for plant assets?

What are the main issues in accounting for plant assets?

What are the main issues in accounting for plant assets?

Description

School: University of Mississippi
Department: Accounting
Course: Intro to Accounting Principles I
Professor: Whitney barton
Term: Spring 2016
Tags: straight line depreciation, units of production depreciation, and double declining balance depreciation
Cost: 25
Name: ACCY201, Chapter 8 Notes: Accounting for Long Term Assets
Description: These notes cover the methods of accounting for long term assets. Types of depreciation: - Straight-line depreciation - Units of Production depreciation - Double Declining Balance depreciation
Uploaded: 04/11/2016
5 Pages 153 Views 0 Unlocks
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Chapter 8Don't forget about the age old question of What is financial security?
We also discuss several other topics like What is physical capital?

Accounting for long term assets

  • Plant assets - tangible assets used by a company for more than a year
  • 4 main issues in accounting for plants assets:
  • Computing the cost (all necessary expenditures for getting the asset in place and ready for its intended use)
  • Allocating the costs of most plant assets (less any savage amount) against revenue for the period they benefit
  • Accounting for expenditures such as repairs and improvements to plant assets
  • Recording the disposal of plant assets
  • Depreciation - process of allocating the cost of the plant asset to expense in the accounting periods benefitting from its use; factor determining depreciation are:
  • Cost - all renewable expenditures to acquire and prepare
  • Salvage value - estimate of assets value at end of period
  • Useful life - length of time it is productively used

Straight - line depreciationWe also discuss several other topics like Why determine ancestry?

        

Units of production depreciation

  1. Depreciation per unit =
  2. Depreciation expense = depreciation per unit x units produced in period

We also discuss several other topics like What is a conclusion lim?

QS 8 -1 page  374

Invoice cost                 $190,000

Electrical work        20,000If you want to learn more check out pom_wm

Delivery                4,000

Sales tax                13,700

Capitalized cost:         $227,700If you want to learn more check out bus 310 cal poly

QS 8 - 3

 = $15,950 straight - line depreciation method

QS 8 - 6        BV                Dep. Ex.

2015                $830,000        $207,500

2016                $622,500        $155,625

2017                $466,875        $116,719

QS 8 - 4

 = $319 / concert        

2015: 45 concerts x $319 = units on - production depreciation        $14,355

QS 8 - 8 page 375

  1. Capital expenditure, because it's extending the assets useful life

(JE) Equipment          40,000

Cash                        40,000

  1. Revenue expenditure; annual tune up - regular repairs

(JE) maintenance expense                200

Cash                                        200

  1. Revenue expenditure; because regularly replacing

(JE) maintenance expense                175

Cash                                        175

  1. Capital expenditure, because raised value of building

(JE) building                225,000

Cash                        225,000

Chapter 8

Notes continue

EX 8 - 3 page 376 Lump Sum Purchase of Plant Assets

Total cost = purchase price ($375,280) + closing

($395,380)        cost($20,100)

Land                        : $157,040         = 40% x $395,380 = 158,152

Building                : $176,670         = 45% x $395,380 = 177,921

Land improvement        : 58,890         = 15% x $395,380 = 59,307

                         $392,600        100%                        $395,380

(JE)

Date         land                        158.152

        Building                177,921

        Land improvement        59.307

        Cash                        395,380

Example: 8 - 7 page 377 straight - line depreciation

                Depreciation                Book Value

2015                $32,250                $121,750

2016                $32,250                $89,500

2017                $32,250                $57,250

2018                $32,250                $25,000

                $129,000

 = $32,250 / year

Example: 8 - 8 page 377 Double Declining Balance Depreciation

                Depreciation                 Book Value

2015                $77,000                $77,000

2016                $38,500                $38,500

2017                $13,500                $25,000

2018                0                        $25,000

Only depreciate up to salvage value

S/L rate =  = 25% x 2 = 50%

Problem 8 - 2A page 380

Don’t depreciate so much that the bV is less than the salvage, if necessary the BV + salvage value may be the same

                S/L                U/P                DDB

Year 1                $59,375        $110,000        $128,750

Year 2                $59,375        $62,300        $64,375

Year 3                $59,375        $60,900        $32,188

Year 4                $59,375        $4,300        $12,187

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