Assets … have probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

Fixed Assets 1. Acquired for use in operation (& not for sale) 2. Are Long-term in nature and usually subject to depreciation 3. Possess physical substance The cost of assets include all those cash equivalent costs of obtaining the asset and bringing it to the location and condition necessary for its intended use.

Cost of Land The purchase price Closing costs Title search Attorney’s fees Recording fees Removing unwanted structures Grading, filling, draining & clearing Assumption of liens, mortgages & encumbrances Any additional land improvements that have an indefinite life (such as special assessments for streets, sewers, drainage, etc.) Reduced by any cost recoveries

Land Improvements include... Private driveways Parking lots Fences Walkways … but permanent landscaping is part of “Land” Cost of Buildings Materials, labor & overhead costs incurred or construction costs Professional fees & building permits … all costs from excavation to completion

Cost of Equipment Purchase price Freight Handling Insurance while in transit Cost of Self-Constructed Assets Include all direct costs (traceable)Include all direct costs (traceable) Plus a pro rata portion of the fixed overhead costs (unless the resulting cost exceeds what it would have charged by an outside contractor)Plus a pro rata portion of the fixed overhead costs (unless the resulting cost exceeds what it would have charged by an outside contractor) Cost of special foundations Assembling Installation Costs of conducting trial runs

Lump Sum Purchase Allocate the total cost of acquiring the basket of assets to the individual assets acquired based on their relative fair market value

Acquisition of Plant Assets through Issuance of Stock Record the assets received at the FMV of the asset received or at the FMV of the stock given … whichever is more clearly evident

Accounting for Contributed Assets... Record at the FMV of the asset acquired

Disposal of Plant Assets 1 st ) update depreciation up to the date of disposal date of disposal 2 nd ) write off the historical cost of the disposed asset 3 rd ) remove the associated depreciation 4 th ) record any consideration received or disposal costs incurred 5 th ) record the gain or loss

Plant Asset Valuation Value an asset at the fair value of what is given up or the fair value of what is received, whichever is more clearly evident. whichever is more clearly evident. (Exception: assets acquired through the exchange of similar assets are sometimes valued based on the book value of the asset given.)

Cash Discounts taken REDUCE the cost of an asset Lump Sum Purchases -- allocate the total cost to individual assets based on relative FMV Deferred Payment Contracts : record at the PV of Consideration Given Deferred Payment Contracts : record at the PV of Consideration Given

Plant Asset Valuation: Exchange of Nonmonetary Assets Dissimilar Assets: gains & losses may be recognizedDissimilar Assets: gains & losses may be recognized Similar Assets: all losses may be recognizedSimilar Assets: all losses may be recognized Similar Assets: gains may only be recognized inSimilar Assets: gains may only be recognized in proportion to the amount of cash rec’d proportion to the amount of cash rec’d

Accounting for Impairments Recoverability Test: E(Future Cash Flows) < Book Value No Impairment Impairment Asset held for use Asset held for disposal 1. Impairment loss = the excess of BV over FV excess of BV over FV (or PV or future cash) (or PV or future cash) 2. Depreciate on new cost basis cost basis 3. Restoration of impair- ment loss is not ment loss is not permitted permitted 1. Impairment loss = the excess of BV over FV excess of BV over FV (less cost of disposal) (less cost of disposal) 2. No depreciation taken 3. Restoration of impair- ment loss is permitted ment loss is permitted no yes