CHAPTER 10

PLANT ASSETS,
NATURAL
RESOURCES, AND
INTANGIBLE
ASSETS
Chapter
10-1
 Section
Section 11 –– Plant
Plant Assets
Assets

Plant assets include land, land improvements,

buildings, and equipment (machinery, furniture, tools).
Major characteristics include:
“Used in operations” and not for resale.
Long-term in nature and usually depreciated.
Possess physical substance.

Referred to as property, plant, and equipment; plant and

equipment; and fixed assets.

Chapter
10-2
 Determining
Determining the
the Cost
Cost of
of Plant
Plant Assets
Assets
Land
Includes all costs to acquire land and ready it for use.
Costs typically include:
(1) the purchase price;
(2) closing costs, such as title and attorney’s fees;
(3) real estate brokers’ commissions;
(4) costs of grading, filling, draining, and clearing;
(5) assumption of any liens, mortgages, or
encumbrances on the property.
Chapter
10-3 LO 1 Describe how the cost principle applies to plant assets.
 Determining
Determining the
the Cost
Cost of
of Plant
Plant Assets
Assets
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.
Remodeling and replacing or repairing the roof, floors,
electrical wiring, and plumbing.
Construction costs:
Contract price plus payments for architects’ fees,
building permits, and excavation costs.
Chapter
10-4 LO 1 Describe how the cost principle applies to plant assets.
 Depreciation
Depreciation

Depreciation is the process of allocating the cost of

tangible assets to expense in a systematic and rational
manner to those periods expected to benefit from the
use of the asset.

Process of cost allocation, not asset valuation.

Applies to land improvements, buildings, and
equipment, not land.

Chapter
10-5 LO 2 Explain the concept of depreciation.
 Depreciation
Depreciation
Factors in Computing Depreciation
Illustration 10-6

Cost Useful Life Salvage Value

Chapter
10-6 LO 2 Explain the concept of depreciation.
 Depreciation
Depreciation
Depreciation Methods
Objective is to select the method that best
measures an asset’s contribution to revenue over its
useful life. Examples include:
(1) Straight-line method.
(2) Units-of-Activity method.
(3) Declining-balance method.
Illustration 10-8
Use of depreciation
methods in 600 large
U.S. companies

Chapter
10-7 LO 3 Compute periodic depreciation using different methods.
 Depreciation
Depreciation
Exercise (Depreciation Computations—Three Methods)
Parish Corporation purchased a new machine for its assembly
process on January 2, 2018. The cost of this machine was
$117,900. The company estimated that the machine would
have a salvage value of $12,900 at the end of its service life.
Its life is estimated at 5 years and its working hours are
estimated at 1,000 hours. Year-end is December 31.
Instructions: Compute the depreciation expense under the
following methods.
(a) Straight-Line.
(b) Units-of-Activity.
(c) Double-Declining Balance.
Chapter
10-8 LO 3 Compute periodic depreciation using different methods.
 Depreciation
Depreciation

Straight-Line
Expense is same amount for each year.
Depreciable cost is
cost of the asset less
its salvage value.
Straight-line method
predominates in
practice.

Chapter
10-9 LO 3 Compute periodic depreciation using different methods.
 Depreciation
Depreciation
Exercise (Straight-Line Method)
Depreciable Annual Accum.
Year Base Years Expense Deprec.
2018 $ 105,000 / 5 = $ 21,000 $ 21,000
2019 105,000 / 5 = 21,000 42,000
2020 105,000 / 5 = 21,000 63,000
2021 105,000 / 5 = 21,000 84,000
2022 105,000 / 5 = 21,000 105,000
$ 105,000
Journal entry 2007
Depreciation expense 21,000
Accumulated depreciation
Chapter
21,000
10-10 LO 3 Compute periodic depreciation using different methods.
 Depreciation
Depreciation

Units-of-Activity
Expense varies based on units of activity.
Depreciable cost is cost
less salvage value.
Companies estimate
total units of activity to
calculate depreciation
cost per unit.

Chapter
10-11 LO 3 Compute periodic depreciation using different methods.
 Depreciation
Depreciation
Exercise (Units-of-Activity Method)
($105,000 / 1,000 hours = $105 per hour)

Hours Rate per Annual Accum.

Year Used Hour Expense Deprec.
2018 200 x $105 = $ 21,000 $ 21,000
2019 150 x 105 = 15,750 36,750
2020 250 x 105 = 26,250 63,000
2021 300 x 105 = 31,500 94,500
2022 100 x 105 = 10,500 105,000
1,000 $ 105,000

Chapter
10-12 LO 3 Compute periodic depreciation using different methods.
 Depreciation
Depreciation

Declining-Balance Method
Decreasing annual depreciation expense over the
asset’s useful life.

Rate applied to book

value (cost less
accumulated
depreciation).

Chapter
10-13 LO 3 Compute periodic depreciation using different methods.
 Depreciation
Depreciation
Exercise (Declining Balance Method)
Net Rate per Annual Accum.
Year Bookvalue Year Expense Deprec.
2018 $ 117,900 x 40% = $ 47,160 $ 47,160
2019 70,740 x 40% = 28,296 75,456
2020 42,444 x 40% = 16,978 92,434
2021 25,466 x 40% = 10,186 102,620
2022 15,280 x 40% = 2,380 105,000
$ 105,000

Chapter
10-14 LO 3 Compute periodic depreciation using different methods.
 Illustration 10-16

Depreciation
Depreciation
Comparison of
Depreciation Methods

Annual Expense
Year SL DB Activity
2018 21,000 47,160 21,000
2019 21,000 28,296 15,750
2020 21,000 16,978 26,250
2021 21,000 10,186 31,500
2022 21,000 2,380 10,500
105,000 105,000 105,000

Chapter
10-15 LO 3 Compute periodic depreciation using different methods.
 Plant
Plant Asset
Asset Disposals
Disposals

Illustration 10-18

Record depreciation up to the date of disposal.

Eliminate asset by (1) debiting Accumulated Depreciation, and
(2) crediting the asset account.
Chapter
10-16 LO 6 Explain how to account for the disposal of a plant asset.
 Plant
Plant Asset
Asset Disposals
Disposals -- Retirement
Retirement
BE10-9 Prepare journal entries to record the following.
(a) Gomez Company retires its delivery equipment, which cost
$41,000. Accumulated depreciation is also $41,000 on this
delivery equipment. No salvage value is received.
(b) Assume the same information as (a), except that
accumulated depreciation for Gomez Company is $39,000,
instead of $41,000.

(a) Accumulated depreciation 41,000

Equipment
41,000

Chapter
10-17 LO 6 Explain how to account for the disposal of a plant asset.
 Plant
Plant Asset
Asset Disposals
Disposals -- Retirement
Retirement
BE10-9 Prepare journal entries to record the following.
(a) Gomez Company retires its delivery equipment, which cost
$41,000. Accumulated depreciation is also $41,000 on this
delivery equipment. No salvage value is received.
(b) Assume the same information as (a), except that
accumulated depreciation for Gomez Company is $39,000,
instead of $41,000.

(b) Accumulated depreciation 39,000

Equipment
Loss on disposal 41,000
2,000

Chapter
10-18 LO 6 Explain how to account for the disposal of a plant asset.
 Plant
Plant Asset
Asset Disposals
Disposals

Chapter
10-19 LO 6 Explain how to account for the disposal of a plant asset.
 Plant
Plant Asset
Asset Disposals
Disposals -- Sale
Sale

BE10-10 Chan Company sells office equipment on

September 30, 2018, for $20,000 cash. The office
equipment originally cost $72,000 and as of January 1,
2018, had accumulated depreciation of $42,000.
Prepare the journal entries to (a) record the sale of the
equipment.

Chapter
10-20 LO 6 Explain how to account for the disposal of a plant asset.
 Plant
Plant Asset
Asset Disposals
Disposals -- Sale
Sale
BE10-10 Prepare the journal entries to (a) record the
sale of the equipment.

(a) Cash 20,000

Accumulated depreciation 42,000
Office equipment
72,000
Loss on disposal 10,000

Chapter
10-21 LO 6 Explain how to account for the disposal of a plant asset.
 Section
Section 22 –– Natural
Natural Resources
Resources
Cost - price needed to acquire the resource and
prepare it for its intended use.

Depletion - allocation of the cost to expense in a rational

and systematic manner over the resource’s useful life.

Chapter
10-22 LO 7 Compute periodic depletion of natural resources.
 Section
Section 33 –– Intangible
Intangible Assets
Assets

Intangible assets are rights, privileges, and

competitive advantages that do not possess physical
substance.

Normally classified as long-term asset.

Common types of intangibles:
Patents Trademarks or trade names
Copyrights Goodwill
Franchises or licenses

Chapter
10-23
 Depreciation for Intangible Assets

Chapter
10-24