ECON 2 Lecture Notes - Lecture 6: Capital Expenditure, Historical Cost, Net Income

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Chapter 10 acquisition and disposition of property, plant and equipment. Property, plant and equipment = plant assets = fixed assets. Acquired for use in operations and not for resale. Most companies use historical cost for valuing ppe. Recognize ppe when cost of asset can be measured reliably, and it is probably that the company will obtain future economic benefits. Costs attributable to bringing asset to location and condition necessary: cost of purchase, including delivery costs. Cost method: less expensive (no appraiser needed) Fair value (revaluation) method: higher asset values often higher depreciation expense + lower net income. All expenditure made to acquire land and ready it for use are considered part of land cost. Special assessments for local improvements (pavement, streetlights, sewers) relatively permanent in nature. Separately record improvements with limited lives land improvements account: private driveways, walks, fences, parking lots.

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