Disposal of Property, Plant or Equipment Definition and Explanation

If scrap value exists, the gain or loss that occurs is the difference between the asset’s scrap value and its book value. If an asset still can be used even though it is fully depreciated, it may be kept on the books at historical cost less depreciation. Sometimes an asset’s service is terminated through some type of involuntary conversion such as fire, flood, theft, or condemnation. They treat these gains or losses like any other type of disposition.

The used machine has a book value of $8,000 (original cost $12,000 less $4,000 accumulated depreciation) and a fair value of $6,000. The new model lists for $16,000. Jerrod gives Information Processing a trade-in allowance of $9,000 for the used machine. Information Processing computes the cost of the new asset as follows.

Understanding Property, Plant, and Equipment (PP&E)

PP&E are assets that are expected to generate economic benefits and contribute to revenue for many years. Realized losses on the trade-in of similar assets are always recognized. As shown in these journal entries, both the asset and its related accumulated depreciation account are removed from the books at their full amounts.

Capitalize no interest during construction. Capitalize interest costs equal to the prime interest rate times the https://accounting-services.net/ estimated cost of the asset being constructed. Descriptionb 71. Determine cost of land. D 72. D 73. C 74.

Trade-In of Plant Assets

Pro Forma Analysis Adley- Week2 DQ2 Initial Reply Capital expenditures are actual expenses incurred to purchase or maintain property assets. These cash outflows are ca… Assets of a durable nature used in the regular operations of a business. Also called fixed assets and plant assets. When a company exchanges non-monetary assets and a loss results, the company recognizes the loss only if the exchange has commercial substance. Item DescriptionE Plant asset accounting.

C 150. B 151. B 152. A 153. A 154.

Ac341, Chapter 10, Property Plant & Equipment & Intangible Assets: Acquisition And Disposition

Government grant assets. F 18. Accounting for government grant. T 19. F 20. Recognizing gains on non-monetary exchanges.

• That is, Intel should report any gain or loss from disposal of a business component with the related results of discontinued operations.
• Property, plant, and equipment (PP&E) are long-term assets vital to business operations and the long-term financial health of a company.
• Credit to Contribution Revenue for $250,000.
• Assumption of any liens or mortgages on the property.
• An interesting question is whether a company can accrue planned maintenance overhaul costs before the actual costs are incurred.
• The specific interest method calculated interest to be capitalized based upon construction loans obtained.

As a result, companies are not permitted to accrue in advance for planned major overhaul costs either for interim or annual periods. Companies sometimes receive or make contributions . Such contributions, nonreciprocal transfers, transfer assets in one direction. A contribution is often some type of asset , but it also could be the forgiveness of a debt.

Acquisition and Disposition of Property, Plant and Equipment.pdf

In that case, the company recognizes a loss but generally defers a gain. When companies acquire property by issuing securities, such as common stock, the par or stated value of such stock fails to properly measure the property cost. If trading of the stock is active, the market value of the stock issued is a fair indication of the cost of the property acquired. The stock is a good measure of the current cash equivalent price. To illustrate, Sutter Company purchases a specially built robot spray painter for its production line.

Calculate cost of truck purchased. Calculate cost of machine purchased. Allocation of cost of a lump sum purchase. Calculate cost of equipment. Acquisition of equipment by exchange of stock held as an investment.

The cost should be handled as an addition, improvement or replacement depending on the type of major repair made. The amount of interest to be capitalized Disposition of Property, Plant, and Equipment is the avoidable interest, or the actual interest incurred, whichever is lower. Which of these is not a major characteristic of a plant asset?

Understand accounting issues related to acquiring and valuing plant assets. During the development of self-constructed assets, interest incurred should be capitalized because these assets are not yet producing revenues. A measure used in determining the amount of interest that can be capitalized. Computed by weighting construction expenditures by the amount of time (e.g., fraction of a year) that a company can incur interest cost on the expenditure. Also called property, plant, and equipment, and plant assets. Also called property, plant, and equipment, and fixed assets. S55.

Property, Plant, and Equipment http://fasb.org/us-gaap/role/disclosure/PropertyPlantAndEquipment

Capitalized as part of the cost of the land. Capitalized as part of the cost of the new hotel.