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Accounting | Chap 8 - Accounting for Long-Term Assests.
Terms in this set (26)
tangible assets used in a company's operations that have a useful life of more than on accounting period.
Also called plant and equipment: property, plant and equipment, or fixed assets.
4 features that distinguish plant assets are:
that they are used in operations
and they have useful lives extending over ore than one accounting period.
what are the 4 steps when accounting or plant assets?
aquisition: compute/value cost of assets.
what do cost include?
cost includes all normal and reasonable expenditures necessary to get the asset in place and ready for it's intended use.
this cost includes invoice costs less cash discount, freight, unpacking, assembling, installing, and testing costs.
machinery and equipment:
cost includeds purchase prices, taxes, transpiration charges, insurance while in transit, and the installig, assembling, and testing.`
cost include the purchase price, brokeage fees, taxes, title fees, attorney fees, repairs, and renovations.
additions to land and have limited useful lives, such as parking logs, driveways, fences, etc.
costs included total amount paid, including real estate commissions, title insurance fees, legal fees, accurred property taxes, etc.
accrued taxes: incurred but no yet paid.
its there are taxes due on the the building when bought, the person buying it is now responsible.
is the process of allocating the cost of a plant asset to expense in the accounting periods benefiting from it's use.
this has nothing to do with the value of actual deterioration.
all necessary and reasonable expendintures to acquire it and to prepare it for it's intended use.
estimated of the asset's value at the end of the useful life. Generally, in pracrtice companies do not assign a salvage value.
the length of time an asset is productively used in a company's operation.
this may not be equivalent to the assets true life.
most common depreciation method. This method records the same amount of depreciation expense each period of assets useful life.
whats the first step of the straight line depreciable method?
find the depreciable cost:
cost - salvage
this is how much of the asset that you are going to use.
what is the second step of the straight line depreciate method?
calulating the annual depreciation
depreciable cost / years used.
how do you represent a journel entry for depreciation?
You would debit the amount to Depreciation Expense.
Then you would credit the amount to Accumulated Depreciation.
net book value:
asset's total cost - accumulated depreciation
decline - balance method
an accelerated depreciation method.
this uses a depreciation rate as multiple of the striaght line rate and applies it to the asset's beginning period book value.
the amount of depreciation declines each period because book value declines each period.
what is the first step of the decline balance method?
calculate the straight line rate:
100 % / useful life (time)
what is the 2nd step of the decline balance method?
straight line rate x 2
hences the double.
what is the 3rd step of the decline balance method?
find the depreciation expense:
double decline rate x beginning period book value or the net book value of the last period.
additional expenditures describe expendintures made for an asset after they have been put into service.
this inclused expenses from maintenance to additions.
additional cost that do not materially increase the asset's life or productive capabilities.
they include orginary repaids.
they maintain the life but do not increases it.
considered an expense.
additional cost of plant assets that provide benefits extending beyond the current period.
there are debited to an asset account, shown on the balance sheet and depreciated.
includes betterment and extraordinary repairs.
improvements; make a plant asset ore efficient or productive.
expenditures extending the asset's useful life beyond it's original estimate.
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