Property, Plant and Equipment

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Property, Plant and Equipment
2015-10-22 03:47:10

Property, Plant and Equipment
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  1. Property, Plant and Equipment
    Physical assets used in the business to provide future economic benefits for a number of years.
  2. Fair Value
    The amount for which an asset could be exchanged for.
  3. Cost of Plant and Equipment
    • Purchase price
    • Freight charges
    • Insurance during transit
    • Installation costs
  4. Cost of Land
    • Purchase price
    • Settlement costs
    • Stamp duty
    • Accrued property taxes
  5. Depreciation
    The process of allocating to expense the cost of a PPE asset over its useful (service) life in a rational and systematic manner.
  6. Carrying amount
    The cost less accumulated depreciation.
  7. Depreciation Contributors
    • Usage of the asset
    • Wear and tear through physical use of the asset
    • Technical and commercial obsolescence
    • Legal life
  8. Factors for Calculating Depreciation
    • Cost
    • Useful life
    • Residual value
  9. Straight-line Method
    Depreciation expense is the same each year.

    (Cost - Residual) / Useful life
  10. Depreciation Accounts
    • Dr Depreciation Expense
    • Cr Accumulated Depreciation
  11. Diminishing-balance Method (Diminishing Value)
    Depreciation expense decreases each year, does not use the residual amount.

    Use straight-line % and x by 1.5 (10 x 1.5 = 15%)
  12. Units-of-production Method
    Useful life is expressed in terms of total units of production or use.

    Depreciable cost / Useful life

    Depreciation expense = cost per unit x units pf production
  13. Disposal of PPE
    • Sale (Gain/loss)
    • Scrapping (loss)
    • Exchange
  14. Record the Sale of an Asset (Gain)
    • Dr Cash
    • Dr Accumulated Depreciation
    • Cr Office Furniture
    • Cr Gain on Disposal
  15. Record the Sale of an Asset (Loss)
    • Dr Cash
    • Dr Accumulated Depreciation
    • Dr Loss on Disposal
    • Cr Office Furniture