1. 10 - 1 PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Plant Assets, Natural Resources, and Intangibles Chapter 10

2. 10 - 2 Plant Assets Tangible in Nature C 1

3. 10 - 3 PLANT ASSETS C 1

4. 10 - 4 Acquisition Cost Acquisition cost excludes financing charges and cash discounts All expenditures needed to prepare the asset for its intended use Purchase price Cost Determination C 1

5. 10 - 5 Land is not depreciable. Purchase price Real estate commissions Real estate commissions Title insurance premiums Delinquent taxes Delinquent taxes Surveying fees Title search and transfer fees Land C 1

6. 10 - 6 Land Improvements Parking lots, driveways, fences, walks, shrubs, and lighting systems. Depreciate over useful life of improvements. C 1

7. 10 - 7 Cost of purchase or construction Brokerage fees Taxes Title fees Attorney fees Buildings C 1

8. 10 - 8 Purchase price Installing, assembling, and testing Insurance while in transit Taxes Transportation charges Transportation charges Machinery and Equipment C 1

9. 10 - 9 Depreciation is the process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use. Cost Allocation Acquisition Cost (Unused) Balance Sheet (Used) Income Statement Expense Depreciation P 1

10. 10 - 10 Factors in Computing Depreciation The calculation of depreciation requires three amounts for each asset: 1. Cost 2. Salvage Value 3. Useful Life P 1

11. 10 - 11 Depreciation for Tax Reporting Most corporations use the Modified Accelerated Cost Recovery System (MACRS) for tax purposes. MACRS depreciation provides for rapid write-off of an asset’s cost in order to stimulate new investment. MACRS depreciation provides for rapid write-off of an asset’s cost in order to stimulate new investment. Most corporations use the Modified Accelerated Cost Recovery System (MACRS) for tax purposes. MACRS depreciation provides for rapid write-off of an asset’s cost in order to stimulate new investment. MACRS depreciation provides for rapid write-off of an asset’s cost in order to stimulate new investment. P 1

12. 10 - 12 Depreciation is an estimate Predicted salvage value Predicted useful life Changes in Estimates for Depreciation Over the life of an asset, new information may come to light that indicates the original estimates were inaccurate. C 2

13. 10 - 13 Reporting Depreciation Dale Jarrett Racing Adventure Office furniture and equipment $ 54,593 Shop and track equipment 202,973 Race vehicles and other 975,084 Property and equipment, gross 1,232,650 Less: accumulated depreciation 628,355 Property and equipment, net $ 604,295 C 2

14. 10 - 14 Additional Expenditures If the amounts involved are not material, most companies expense the item. C 3

15. 10 - 15 Revenue and Capital Expenditures C 3

16. 10 - 16 Recording cash received (debit) or paid (credit). Removing accumulated depreciation (debit). Update depreciation to the date of disposal. Journalize disposal by: Removing the asset cost (credit). Recording a gain (credit) or loss (debit). Recording a gain (credit) or loss (debit). Disposals of Plant Assets P 2

17. 10 - 17 End of Chapter 10