1. Operational Assets - Property, Plant, and Equipment Chapter 10 Kieso, Weygandt, Warfield

2. Capital Expenditures vs Revenue Expenditures Capital Expenditures – Cash outflows for goods and services that will provide future economic benefit beyond the current period. AssetsXXXX CashXXXX Revenue Expenditures – Cash Outflows for goods and services beneficial only to the current period ExpenseXXXX CashXXXX

3. Operational [Tangible] Assets 1. Acquired for use in Operations 2. Not held for resale 3. Expected lives are long-term 4. Must have physical substance 5. Used to generate revenue ** Examples include Equipment, Land, Building

4. Costs to be Capitalized General Rule The initial cost of an operational asset includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use.

5. Net purchase price Taxes Transportation costs Installation costs Modification to building necessary to install equipment Testing and trial runs Net purchase price Taxes Transportation costs Installation costs Modification to building necessary to install equipment Testing and trial runs Costs to be Capitalized ---- Equipment

6. Land is not depreciable. Purchase price Real estate commissions Attorney’s fees Title search Title transfer fees Title insurance premiums Removing old buildings Material costs of improvements that are permanent in nature Purchase price Real estate commissions Attorney’s fees Title search Title transfer fees Title insurance premiums Removing old buildings Material costs of improvements that are permanent in nature Costs to be Capitalized ---- Land

7. Separate identifiable costs of Driveways Parking lots Fencing Private roads Separate identifiable costs of Driveways Parking lots Fencing Private roads Costs to be Capitalized ---- Land Improvements

8. Purchase price Architectural fees Cost of permits Excavation costs Construction costs Purchase price Architectural fees Cost of permits Excavation costs Construction costs Costs to be Capitalized ---- Buildings

9. The following expenditures and receipts are related to land, land improvements, and buildings acquired for use in a business enterprise. Identify each expenditure as part of the cost of the land, building, or land improvements asset account. 1. Payment for construction from note proceeds - $275,000 2. Cost of land fill and clearing - $8,000 3. Delinquent real estate taxes on property assumed by purchaser - $7,000 4. Architect’s fee on building - $22,000 5. Cost of real estate purchased as a plant site - [land $200,000 and building $50,000] 6. Commission fee paid to real estate agency - $9,000 7. Installation of fences around property – $4,000 8. Cost of razing and removing old building - $11,000 9. Proceeds from salvage of demolished building - $5,000 10. Cost of parking lots and driveways - $19,000 11. Cost of trees and shrubbery planted (permanent in nature) - $14,000 12. Ground excavation costs for basement of new building - $3,000 13. Interest paid during construction on money borrowed for construction - $13,000

10. Answer to Question from Previous Slide Land Cost of fill and clearing $8,000 Delinquent taxes $7,000 Cost of Land and old Bldg 250,000 Commission to Realtor $9,000 Cost of removing old Bldg $11,000 Proceeds fr old Bldg salvage ($5,000) Cost of trees & shrubs $14,000 $294,000 Building Pmt for construction $275,000 Architect Fee $22,000 Excavation costs $3,000 Interest during construction $13,000 $313,000 Land Improvements Fences $4,000 Parking lots and driveways $19,000 $23,000