PPE - Valuation

Valuation of Plant Assets

At the date of acquisition, a plant asset is recorded at whichever fair value is more readily determinable
and reliable:

1. the consideration given in the exchange or

2. the asset acquired.

After the date of acquisition, plant assets are carried at acquisition date fair value less accumulated
depreciation.

Purchase on Credit

Often plant assets are acquired on a deferred payment or by issuing a note payable.

The asset is recorded at the present value of future cash payments using a market rate of interest for
similar financing arrangements.

Practice Question

A plant asset is purchased with $10,000 down and a 2-year non-interest bearing note with a single
payment at maturity of $20,000. The PV factor of $1 for 2 years at 10% is .82645.

At what value is the plant asset recorded on the date acquired?

Answer

The plant asset will be recorded at $26,529.

{10,000 + (20,000 × 0.82645)}

The entry is:

DR: Plant asset 26,529

CR: Cash 10,000

CR: Note payable 16,529

Issuance of Securities

Plant assets acquired through the issuance of stocks or bonds are recorded at the fair value of the
security given or the fair value of the asset acquired, whichever is more clearly determinable.

PPE 4|Page