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Types (classifications) of Assets:
- Current Assets - short lived assets used in the operations of a business
- Plant Assets - long lived tangible assets used in the operations of a business
- Long Term Investment - long lived tangible assets held for investment purposes
- Intangible Assets - assets with no physical form but the special rights they have give them value
Cost of a Plant Assets:
Costs assigned to a plant asset equal the sum of all costs incurred to bring the asset to its intended purpose minus all discounts received.
Land Costs include
Original purchase price - Back property taxes
Commissions - grading and clearing the land
Survey fees - demolishing or removing of buildings
Legal fees
Land Improvements costs include
Fencing costs - Lighting
Paving driveways - Signs
Sprinkler systems
Buildings cost include
Original purchase price - Building permits
Commissions - Contractor หs charges
Sales and other taxes - Materials, labor, and overhead
Repairs and renovations - Capitalized interest
Architectural fees
Machinery and Equipment cost include
Original purchase price - Commissions
Transportation charges - Installation charges
Insurance while in transit - Testing costs (before placed in service)
Sales and other taxes - Repairs (before placed in service)
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Assets and their related expense account:
Asset Related Expense Account Plant Assets Land None Buildings, Machinery, Equipment Furniture, Land Improvements Depreciation Expense Natural Resources Depletion Expense Intangible Assets Amortization Expense
Construction in Progress:
Construction in progress is an asset that the company is constructing for its own use in the business.
Capitalizing Interest:
Interest expenses in connection with the const ruction of an asset is to be capitalized as part of the cost of that asset.
(1) Interest based on the Average Accumulated Construction expenditures Interest to be capitalized = the lessor of Or (2) Actual interest cost on borrowed money หduring the construction period ห
Incurring construction costs:
Building (or Construction in Progress) $xxxxx Cash (or Notes Payable) $xxxxx
Accrued Interest:
Building (or Construction in Progress) Capitalized Interest Interest Expense Difference (if any) Interest Payable Total accrued interest
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Depreciation Methods:
Straight line method : Cost - Residual Value Depreciation per year = Useful life in years
Units of production method :
Cost - Residual Value Depreciation per unit = of output Useful life in units
Depreciation for the year = Depreciation per unit * Units produced
Double declining balance method :
Step 1: Find Straight line (SL) rate = 1 / Useful life
Step 2: Find Double declining balance (DDB) rate = SL rate * 2
Step 3: Find depreciation for the year = Beginning Book Value * DDB rate
Depreciation taken cannot bring the book value below the residual value in any given year. Normally the depreciation will have to be limited in the assets last couple of years of service.
Disposal of Plant Assets:
When fully depreciated :
Accumulated Depreciation - Asset Total Depr. taken Loss on disposal of asset Residual Value Asset Original cost
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Disposal of Plant Assets:
When not fully depreciated :
Accumulated Depreciation - Asset Total Depr. taken Loss on disposal of asset Remaining Book Value Asset Original Cost
Sale of a Plant Asset:
(1) Calculate the depreciation for the year up to the time of sale
Depreciation Expense, Asset Depr. for the year * (# months/12) Accumulated Depreciation, Asset Depr. for the year * (# months/12)
(2) Determine the Gain or Loss on the sale
Cash received $xxxxx Book value of asset Original cost $xxxxx Accum. Depr. (xxxxx) (xxxxx) Gain (Loss) on sale $ xxxx
(3) Journal entry to record the sale
Cash Sales Price Accumulated Depr, Asset Total Depr. taken Asset Original Cost Gain on sale of asset Difference
If there was a loss on the sale of the asset, then there would be a debit to หLoss on sale of asset ห account rather than a credit to หGain on sale of asset ห
