Nguyễn Khánh Ngọc

Chapter 10: Plant Assets, Natural Resources, and Intangible Assets

1. Plant assets (or PPE, fixed assets, plant and equipment): are resources:
- physical substance
- used in the operations
- not intended for sale
- expected to be of use for a number of years
➔ record cost following Historical Cost Principle: cost consist of all expense to buy
an asset and make it ready for use.
a. Land: cost typically include:
- cash purchase price (tiền mua đất)
- closing costs: title and attorney’s fees (phí quyền sở hữu và phí luật sư)
- real estate brokers’ commissions (hoa hồng cho môi giới bất động sản)
- accrued property taxes and other liens on land assumed by purchaser (thuế tài
sản tích luỹ và các khoản bồi thường khác đối với đất của người mua)

Ex: Feeney Clinic purchases land for $130,000 cash. The clinic assumes $1,500 in
property taxes due on the land. The title and attorney fees totaled $1,000. The clinic
has the land graded for $2,200. What amount does Feeney Clinic record as the cost
for the land?
➔ The cost recorded in Land account includes cash purchases $130,000, property taxes
$1,500, the title and attorney fees $1,000, land grading $2,200.
Land 134,700
Cash 134,700
b. Land Improvement: chứa tất cả chi phí cho sự nâng cấp đất (driveways, parking
lots, fences, landscaping, underground sprinklers…)
- Limited useful lives
- Depreciate cost of improvement over their useful life
Ex: Wesley Hospital installs a new parking lot. The paving cost $40,000 and the
lights to illuminate the new parking area cost $25,000.

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➔ Land improvement includes all the cost that makes this new parking lot intended to
use: the paving cost $40,000 and the lights cost $25,000
Land improvement 65,000
Cash 65,000
c. Buildings: includes all costs related directly to purchase or construction
- Purchase costs: purchase price, closing costs (attorney’s fees, title insurance,
etc.) and real estate broker’s commission
- Costs to make the building ready for use: expenditures for remodeling and
replacing or repairing the roof, floors, electrical wiring, and plumbing.
- Construction costs: contract price, payments for architects’ fees, building
permits, and excavation costs.
d. Equipment: costs typically include:
- Cash purchase price (tiền mua thiết bị)
- Sales taxes (thuế thương vụ)
- Freight charges (phí ship)
- Insurance during transit paid by purchaser (vd: bảo hiểm hàng hoá khi gửi hàng
qua bưu điện)
- Assembling, installing, and testing (chi phí lắp ráp, cài đặt, thử nghiệm)
*Note: Equipment account does not include motor vehicle license and accident
insurance (they are expenses).
→ Motor vehicle license cost recorded in License Expense
→ Accident insurance recorded in Prepaid Insurance
Ex: Huang Group purchases a delivery truck at a cash price of $420,000. Related
expenditures consist of sales taxes $13,200, painting and lettering $5,000, motor
vehicle license $800, and a three-year accident insurance policy $16,000.
Compute the cost of the delivery truck.
➔ The cost of truck includes cash price $420,000, sales taxes $13,200, painting and
lettering $5,000 → truck = 438,200
➔ Journal entry:
Equipment 438,200
License Expense 800

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Prepaid Insurance 16,000

Cash 455,000
2. Expenditures During Useful Life

3. Depreciation Methods*
➢ Depreciation:
- Process of cost allocation, not asset valuation (là quá trình phân bổ chi phí,
không phải định giá tài sản)
- Applies to land improvements, buildings, and equipment, not land
- Depreciable because the revenue-producing ability of asset will decline over the
asset’s useful life (plant asset khi sử dụng trong 1 khoảng thời gian dài thì chất
lượng hay khả năng sinh lợi nhuận của nó sẽ giảm dần theo thời gian → tính hao
mòn của plant asset)
a. Straight-line method: Annual Depreciation Expense is same amount for each year.
- Step 1: Calculate Depreciable Cost

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- Step 2: Calculate Annual Depreciation Expense

*Note: 1/(Useful Life) = Depreciation Rate

- Step 3: Create Straight-line method schedule
➢ Nếu công ty bắt đầu khấu hao ngay ngày 1/1 (January 1) thì lập bảng như
bên dưới là đủ

➢ Nếu công ty bắt đầu khấu hao vào khoảng thời gian bất kỳ (vd: ngày 1/4) thì
cần thêm cột partial year và current year expense

- Step 4: Record journal entry (nếu đề bài yêu cầu)

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b. Units-of-activity method:
- Step 1: Calculate Depreciable Cost (Nếu như câu trước đã tính rồi thì không cần
tính lại nữa)

- Step 2: Calculate Depreciable Cost per Unit

- Step 3: Calculate Annual Depreciation Expense

*Note: Unit of activity mỗi năm đề bài sẽ cho.

- Step 4: Create Units-of-activity depreciation schedule

- Step 5: Record journal entry

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c. Declining-balance method (or Double Declining-balance):

➢ Nếu công ty bắt đầu khấu hao từ đầu năm – ngày 1/1

➢ Nếu công ty bắt đầu khấu hao vào khoảng thời gian bất kỳ trong năm (vd: ngày
1/4)

*Note:
- Accumulated Depreciation ở năm cuối luôn luôn bằng Depreciable Cost
→ Current year expense của năm cuối = Accumulated Depreciation năm cuối –
Accumulated Depreciation năm trước
4. Revised Depreciation:
- Step 1: Calculate the net book value of asset
• Depreciation expense
• Accumulated depreciation after xx years
• Net book value
- Step 2: Calculate depreciation charge using revised estimates

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• New depreciable cost = Net book value – new residual value

• Revised annual depreciation = Depreciable cost/remaining useful life
Ex: An asset was purchased for $250,000. It had an estimated salvage value of
$50,000 and an estimated useful life of 10 years. After 5 years of use, the estimated
salvage value is revised to $40,000 but the estimated useful life is unchanged.
Assuming straight-line depreciation, depreciation expense in year 6 would be:
Original cost = 250,000
Estimated salvage value = 50,000
Depreciable cost = 200,000
Annual depreciation expense = 200,000/10 = 20,000
➔ Accumulated depreciation 5 years = 20,000 x 5 = 100,000
➔ Book value = 250,000 – 100,000 = 150,000
➔ New depreciable cost = 150,000 – 40,000 = 110,000
➔ Annual depreciation expense = 110,000/5 = 22,000
5. Plant Asset Disposal
a. Retirement: Journal entry if:
➢ Original cost of asset = Accumulated Depreciation
Accumulated Depreciation xxx
Asset account xxx
➢ Original cost of asset > Accumulated Depreciation
Accumulated Depreciation xxx
Loss on Disposal of Plant Assets xxx
Asset account xxx
b. Sale: Compare Book Value (= Cost – Accumulated Depreciation) with the
proceeds from sale
➢ Proceeds > book value → gain on disposal
Cash xxx
Accumulated Depreciation – Equipment xxx

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Equipment xxx
Gain on Disposal of Plant Assets xxx
➢ Proceeds < book value → loss on disposal
Cash xxx
Accumulated Depreciation – Equipment xxx
Loss on Disposal of Plant Assets xxx
Equipment xxx
Ex: A company sells a plant asset which originally cost $360,000 for $120,000 on
December 31, 2014. The Accumulated Depreciation account had a balance of
$144,000 after the current year's depreciation of $36,000 had been recorded. The
company should recognize a
a. $240,000 loss on disposal.
b. $96,000 gain on disposal.
c. $96,000 loss on disposal.
d. $60,000 loss on disposal.
$120,000 - ($360,000 - $144,000) = ($96,000)
Cash 120,000
Accumulated depreciation 144,000
Loss on disposal of plant asset 96,000
Equipment 360,000
6. Natural Resources:
- Physically extracted in operations
- Replaceable only by an act of nature
- Depletion: use units-of-activity

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➔ Journal entry: Inventory xxx

Accumulated Depletion
7. Intangible Assets
Limited-life assets
Amortization Expense xxx
Asset account xxx
xxx
Indefinite-life assets
- No foreseeable limit on time
- No amortization

Trademarks
Patents Copyrights Franchises Goodwill
and Trade name
- Amortize over - Amortize over - Not amortize - Limited life - Not amortize
20 years or useful (life of → amortize
- Record when
life (shorter) creator+70
- Indefinite entire business is
years)
- Record R&D life →not purchased
cost as R&D - Cost = acquiring amortize
expense + defending
- Record legal
fees to Patents
account

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