Plant and Intangible

Assets
Chapter 9

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Major Categories of Plant Assets

Tangible In ta n g N a tu r a
P la n ib le A l
tA s s e t sset Resou
s s rces
L o n g -t e r m N o n c u rr e n t a S it e s a
assets ha ssets c q u ir e d fo
r
p ving w i t hn o p h
ysicalsu e x tr a c ti n g v
h y s ic a ls u b a lu a b l e r
stance. bstanc
esource
L a n d , b u il d i P a tee .n t s , c o p y Os i.l r e s e r v e
ngs, ri g h t s , s,
e q u ip m e n tra d e m a r k s , ti m b e r,o
f ra n c h i s e s , g .
t, th e r m i
f u r n i t u r e ,f i x t o o d w il l n e ra l s .
ures.
9-2
Accountable Events in
the Lives of Plant Assets
Acquisition.

Allocation of the
acquisition cost to expense
over the asset’s useful life
(depreciation).
Sale or disposal.
9-3
Acquisition of Plant
Assets
Asset
Cost = price
price
+
Reasonable and
necessary costs . . .

. . . for getting . . . for getting

the asset to the the asset ready
desired location. for use.

9-4
Capital Expenditures and
Revenue Expenditures
CC apiapittalal
Capital RRevenue
Reveveennu
Expenditure eue
Expenditure
EExxpendip
EExxpendip
Any
AAnnmaterial
en
yy mmaaexpenditure
tteerriiaall Expenditure
EExpxpeennddfor
iittu
ethat
expxpwill
ee nnbenefit
ddiittuuseveral
rree urree ffen
ordinary repairs
oo rr
accounting periods. and maintenance.
tthhaatt wwiillll oorrddiinnaarryy

bbeenneeffiitt rreeppaaiirrss

sescevaveperrian
To oo c a p iattaala
TTcapitalize lexpenditure
lliizzee aann ToTT oaoanen
expense edxpdxpan
eenexpenditure
nssee aann
means cpcto
eaeaxpcx eceon charge
onududninittttuiitiunrto an
nrege
g means
ee xpato
mxpm eaeiincharge
nn
ndttdeieitntunituarto
areean
asset account. expense account.
ppem
m ererieioaoadndnssss..ttoo nmncmceeee.a.annss ttoo
chchaarrggee iitt ttoo aann cchhaarrggeeiitt ttoo aann 9-5
Depreciatio
n The
TThhallocation
ee aallllooof
cacathe
ttiiocost
onnoof
offa
tthplant
heecoasset
costst oto
off
aappllaanin
expense ntta asseperiods
the ssett ttoo in which services are

e x p e nreceived
se i n t hfrom e pthee riasset.
o d s in
e x p e n se i n t h e p e ir o d s i n

wwhhiBalance
ichchseseSheet
rrvviicecessaarere
Cost of
reAssets:
receceiivveeddffroo
r mmtthhee
plant Plant and
assets aasequipment
ssseett..

as the services are

Income Statement
received
Revenues:

Expenses:
Depreci
9-6
Depreciatio
n Book Value
Cost – Accumulated Depreciation
Depreciation
Contra-asset
Represents the portion of an asset’s cost
that has already been allocated to expense.
Causes of Depreciation
Physical deterioration
Obsolescence

9-7
Straight-Line
Depreciation
Cost - Residual
Depreciation
= Value Years of
Expense per Year Useful Life

9-8
Declining-Balance
Method
Depreciation in the early years of an asset’s
Depreciation in the early years of an asset’s
estimated useful life is higher than in later years.

The double-declining balance depreciation

rate is 200% of the straight-line depreciation
rate of (1÷Useful Life).

9-9
Revising Depreciation
Rates
Predicted
Prredicted
salvage value
useful
liffe
So depreciiation
is an estimate.

Over the life of an asset, new

information may come to light that
indicates the original estimates
need to be revised.
9-10
Impairment of Plant Assets

If the cost of an asset

cannot be recovered
through future use or
sale, the asset
should be written
down to its net
realizable value.

9-11
Disposal of Plant and
EquipmentUpdate depreciation
to the date of disposal.

Journalize disposal by:

Recording
Recording cash
cash Recording
Recording a
received (debit).
received gain
gain (credit)
(credit)
(debit). or
or loss
loss (debit).
(debit).

Removing
Removing accumulated
accumulated Removing
Removing the the
depreciation (debit).
depreciation (debit). asset costcost
asset (credit).
(credit).
9-12
Disposal of Plant and
Equipment
If Cash > BV, record a gain (credit).
IfIf Cash
Cash << BV,
BV, record
record aa loss
loss (debit).
(debit).
IfIfCash
Cash==BV,
BV,nonogain
gainororloss.
loss.

Recording
Recording cash
cash Recording
Recording a
received (debit).
received gain
gain (credit)
(credit)
(debit). or
or loss
loss (debit).
(debit).

Removing
Removing accumulated
accumulated Removing
Removing the the
depreciation (debit).
depreciation (debit). asset costcost
asset (credit).
(credit).
9-13
Intangible
Assets
Noncurrent assets Often
Often provide
provide
without physical exclusive rights
substance.
substance. or
or privileges.
privileges.

Characteristics

Useful life is Usually acquired

often
often difficult
difficult for
for operational
operational
totodetermine. use.
use.
determine.
9-14
Intangible
AssetsRecord at
current cash  Patents
equivalent cost,  Copyrights
including  Leaseholds
purchase price,
 Leasehold
legal fees, and
filing fees. Improvement
s
 Goodwill
 Trademarks
and Trade
Names 9-15
Depletion of Natural
Resources
Depletion is calculated using the
units-of-production method.

Unit depletion rate is calculated as

follows:
Cost – Residual
Value Total Units of
Natural
Resource

9-16
End of Chapter
9

9-17