ACCT 2301 Lecture Notes - Lecture 9: Historical Cost, European Cooperation In Science And Technology
2 types of long lived assets:
Plant asset: land, equip, buildings, furniture etc
Intangible assets: copyrights, trademarks, patents, franchises etc
Accounting issues:
1.Account for the acquisition cost.
2.Expense the asset’s cost over time.
3.Determine the treatment of future expenditures on the original assets.
4.Account for the disposal of the assets.
ACQUISITION COST:
Long-lived assets are initially recorded at their acquisition cost.
¡Called the historical cost
¡Includes cash and/or cash equivalent given up to acquire the assets and get it ready for its intended
use
PACKAGE PURCHASES:
Assets purchased as a group need to be allocated since different assets may have different useful lives,
depreciation methods, and reporting requirements.
The allocation is done based on relative market value or appraisal values.
Expenditures related to Land:
All costs necessary to bring the land into condition for use should be capitalized. This includes:
¡Property taxes on purchase
¡Insurance on purchase
¡Legal fees on purchase
¡Fees to remove old buildings
¡Special assessments
Net recoveries from selling removed items reduce capitalized cost.
Limited life items of land improvements such as driveways and fences should be accounted for as
separate items.
Leasehold improvements are accounted for separately
Depreciation:
Other than land, a plant asset cost must be allocated to the periods of the plant asset use.
The period of depreciation is the asset’s useful life, which may differ from its physical life.
The company must also estimate the asset’s salvage value, which represents the asset’s value at the
end of its useful life.
Depreciation is not for valuation:
Depreciation is a systematic allocation for matching expenses to revenue recognition.
Depreciation is not intended to align the book value of an asset to its market value.
Accounting value not equal to market value
Calculating depreciation expense:
Many different methods are allowed for calculating depreciation.
Some common methods
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Document Summary
3. determine the treatment of future expenditures on the original assets. Long-lived assets are initially recorded at their acquisition cost. Includes cash and/or cash equivalent given up to acquire the assets and get it ready for its intended use. Assets purchased as a group need to be allocated since different assets may have different useful lives, depreciation methods, and reporting requirements. The allocation is done based on relative market value or appraisal values. All costs necessary to bring the land into condition for use should be capitalized. Net recoveries from selling removed items reduce capitalized cost. Limited life items of land improvements such as driveways and fences should be accounted for as separate items. Other than land, a plant asset cost must be allocated to the periods of the plant asset use. The period of depreciation is the asset"s useful life, which may differ from its physical life.
