PLANT ASSETS

Chapter 09

Slide
9-2

What is Plant Asset ?

Long-lived
Long-lived assets
assets acquired
acquired for
for use
use in
in business
business
operations.
operations.

Those
Those Assets
Assets whose
whose life
life is
is for
for more
more than
than one
one year.
year.
OR
OR
Those
Those assets
assets from
from which
which we
we are
are going
going to
to derive
derive benefits
benefits for
for
more
more than
than one
one year.
year.

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Slide
9-3

Major Categories of Plant

Assets

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Slide
9-4

Purchase of Plant
Assets:

Cost
Cost of
of
Plant
Plant Asset
Asset

Asset
Asset
price
price

Reasonable
Reasonableand
and
necessary
necessarycosts
costs......

......for
forgetting
getting
the
theasset
assetto
tothe
the
desired
desiredlocation.
location.
McGraw-Hill/Irwin

......for
forgetting
getting
the
theasset
assetready
ready
for
foruse.
use.

The McGraw-Hill Companies, Inc.

Slide
9-5

Determining Cost

Example:
Example:
On
OnMay
May4,
4, Heat
HeatCo.,,
Co.,,buys
buysaanew
new machine
machinefrom
from another
another
company.
company. The
Thenew
new machine
machine has
hasaa price
priceof
of $52,000.
$52,000.
Sales
Salestax
taxamount
amount paid
paidwas
was$4160.
$4160.
Heat
HeatCo.
Co. pays
pays$500
$500shipping
shippingcost
cost to
toget
getthe
themachine
machineto
to
workplace.
workplace. After
After the
themachine
machine arrives,
arrives, set-up
set-upcosts
costsof
of
$1,300
$1,300was
wasincurred.
incurred.
Compute
Computethe
thecost
cost of
ofHeat
HeatCo.s
Co.snew
newmachine.
machine.

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Slide
9-6

Determining Cost New Machine

Purchased:

Prepare the journal entry.

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Slide
9-7

Depreciation

The
Thedecrease
decreasein
inthe
thevalue
valueof
ofaaplant
plantasset
assetw.r.t
w.r.tto
totime
timeor
or
usage.
usage.
Cost of
plant
assets

Balance
BalanceSheet
Sheet
Assets:
Assets:

Plant
Plantand
andequipment
equipment

Income
IncomeStatement
Statement

as the services
are received

Expenses:
Expenses:

Depreciation
Depreciation

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Slide
9-8

Methods of Depreciation:
1.
2.

3.
4.
5.

Straight Line Method.

Modified Accelerated Cost Recovery
System (MACRS).
Double Declining Method.
Unit of Output Method.
Sum of the Years Digits Method.

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Slide
9-9

THANKS

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The McGraw-Hill Companies, Inc.