西方财务会计-chapter8

Chapter8PLANTASSETS1INTRODUCTIONNoncurrenttangibleassets.Acquiredforuseintheoperationofthebusiness.Theaccountsthatmakeupplantassetsappearonthebalancesheetaftercurrentassetsandlong-terminvestments.Othertitlesforplantassetsarefixedassets;propertyandequipment;andproperty,plant,andequipment.Plantassetsshouldbeexpectedtolastformorethanoneaccountingperiod.Plantassetsareusuallydepreciablepropertyexceptforland.Examples:land,buildings,officemachines……2AccountingforplantassetsAcquisitionDisposal(discard,sell,exchange)Depreciation3ValuationofplantassetsatacquisitionForonepiece:reasonableandnecessaryexpenditureForlump-sumpurchase:allocatingtothevariousassetspurchasedaccordingtheirfairmarketvalue.Plantassetscanbeacquiredwithlong-termnotespayable.(Insuchcase,assetsarerecordedatthepresentvalueoftheconsiderationexchanged)4AssetAcquisition:onepieceAssetprice

...forgettingtheassettothedesiredlocation.

...forgettingtheassetreadyforuse.Cost=Reasonableandnecessarycosts...+5DeterminingCostOnMay4,HeatCo.,anOhiomakerofstoves,buysanewmachinefromaTexascompany.Thenewmachinehasapriceof$52,000.Salestaxwascomputedat8%.HeatCo.pays$500shippingcosttogetthemachinetoOhio.Afterthemachinearrives,set-upcostsof$1,300areincurred,alongwith$4,000intestingcosts.

ComputethecostofHeatCo.’snewmachine.6DeterminingCost7Lump-Sum(orBasket)

PurchasesofAssetsBasketPurchase

Thepurchaseoftwoormoreassetsacquiredtogetheratasingleprice.RelativeMarketValuation

Awayofallocatingabasketpurchasepricetotheindividualassetsacquiredbasedontheirrespectivemarketvalues.(example:page166)8Acquisitionofplantassetswithnotepayable

Insuchsituation,inordertobeinaccordancewiththecostprinciple,therecordedcostofanassetpurchasedoncreditisbasedononeofthefollowing,whicheverismoreobjectiveandreliable:(1)thecashequivalentprice(marketvalue)and(2)thepresentvalueofthefuturecashpaymentsrequiredbythedebtagreementdiscountedattheprevailing(market)interestrateforthattypeofdebt.

9Acquisitionofplantassetswithnotepayable

Example:onMay1,2003,Fesler,Inc.purchasedequipmentpaying$3000downandissuinganotepayable.Thenoterequiredfourannualpaymentsof$2500withthefirstpaymentdueonMay1,2004.Thenoteisnoninterest-bearing.Theprevailingmarketrateofinterestonnotesofthiskindis12%.PreparetherequiredjournalentriesonMay1,2003(year-end).Theusefullifeoftheequipmentwasestimated10yearsandnosalvagevalue.10AcquisitionofplantassetswithnotepayableAnnuitypayment$2500PVA$1,n=4,I=12%3.03735PVofnote(rounded)$7593Downpayment3000Costofequipment$105935/1Equipment10593DiscountonNotepayable2407Cash3000Notespayable1000012/31interestexpense607DiscountonNotepayable607($7593*12%*8/12=$607)Depreciationexp.706

Accu.Depr.706($10593*1/10*8/12=706)11DiscardSellformonetaryconsiderationExchangefornoncashassetsDisposalofPlantAssets$AccountingforDisposal

ofPlantAssets:discardFixturescost: $4,000Accumulateddepreciation: $3,000Bookvalue $1,000AccumulatedDepreciation 3,000LossonDisposal 1,000 StoreFixtures 4,000Todisposeofstorefixtures13SellingaPlantAssetForbookvalue:nogainorloss(example1)Abovebookvalue:againisrecorded(example2)Belowbookvalue:alossisrecorded(example3)14ForstudentsOnSeptember30,2005,EvansMapCompanysellsamachinethatoriginallycost$100,000for$60,000cash.ThemachinewasplacedinserviceonJanuary1,2000.Ithasbeendepreciatedusingthestraight-linemethodwithanestimatedsalvagevalueof$20,000andanestimatedusefullifeof10years.

Let’sanswerthefollowingquestions.

15

TheamountofdepreciationrecordedonSeptember30,2005,

tobringdepreciationuptodateis: a. $8,000. b. $6,000. c. $4,000. d. $2,000.AnnualDepreciation:($100,000-$20,000)÷10Yrs=$8,000DepreciationtoSept.30:9/12×$8,000=$6,00016

Afterupdatingthedepreciation,themachine’sbookvalueonSeptember30,2005,is: a. $54,000. b. $46,000. c. $40,000. d. $60,000.17Themachine’ssaleresultedin: a. againof$6,000. b. againof$4,000. c. alossof$6,000. d. alossof$4,000.18

Preparethejournalentrytorecordthesale.19NonmonetaryTransactions(Exchanges)Thetypesofnonmonetaryexchangeswewillbelookingatareasfollows:DissimilarexchangesSimilarexchangesLossinvolved,noboot(cash)Lossinvolved,bootpaidbyyouLossinvolved,bootreceivedbyyouGaininvolved,nobootGaininvolved,bootpaidbyyouGaininvolvedbootreceivedbyyou20ExchangesofPlantAssetsTypesof Accounting RationaleExchange GuidanceDissimilar Recognizegain Earningsprocessassets andlosses iscompleteSimilar Recognizeloss; Earningsprocessassets(cash ispartiallyreceived

partialgain completeSimilar Recognizeloss; Earningsprocessassets(No

Defergain isnotcompletecashreceived)21ExchangesofsimilarAssets

Example:Landforland,truckfortruck,etc.Inthiscasebuton-going.LossesshouldalwaysberecordedaccordingtoConservatismprinciplebutgainsdeferredinsomecasesbecause

theearningsprocessisnotreallycomplete

22Exchangesof

similarAssets

Businessesoftentradeintheiroldplantassetsforsimilarassetsthatarenewerandmoreefficient.

Thelistpriceofthenewassetlessthetrade-inallowedfortheoldassetequalstheamounttobepaid.(example:page169)Inmanycases,thelistprice(fairmarketvalue)andthecashpaid(orreceived)areready,sothetrade-inallowedisnotappear.23SimilarAssets:loss;NobootTruck#1(You) Truck#2Cost $35,000 FMV $20,000A/D 10,000BV 25,000FMV 15,000Loss=$10,000Torecord:A/D 10,000Loss 10,000 Truck#2 Truck#1 35,00015,00024SimilarAssets:loss;cashpaidBusinessesoftentradeintheiroldplantassetsforsimilarassetsthatarenewerandmoreefficient.

Thelistpriceofthenewassetlessthetrade-inallowedfortheoldassetequalstheamounttobepaid.(example:page169)Inmanycases,thelistprice(fairmarketvalue)andthecashpaid(orreceived)areready,sothetrade-inallowedisnotappear.25SimilarAssets:loss;cashpaidLossesarerecognizedThenewassetisrecordedatthefairmarketvalueoftheassetexchanged(=Fairvalueofusedasset+Cashpaid).Example5:page16926SimilarAssets:loss;cashpaidTruck#1(You) Truck#2Cost $12,000 FMV $13,000A/D 4,000BV 8,000FMV(#1) 6,000Loss=$2,000FMV(#1) 6,000+cashpaid7,000Total 13,000

27Torecord:

Truck#2 A/D(Accu.Dep) 4,000 Loss 2,000 Truck#1 12,000 Cash 7,00013,00028Similar:Loss;CashReceivedLand#1(You) Land#2Cost $50,000FMV $28,000FMV$38,000cashpaidbyyou:10,000

$50,000-38,000=$12,000loss

29Torecord:

Cash 10,000Loss 12,000Land#2 Land#1 50,00028,00030SimilarAssets:Gain;NobootLand#1(You) Land#2BV $80,000 FMV $90,000FMV90,000Gain=$10,000notrecognizedTorecord:

Land#2 Land#1 80,00080,00031SimilarAssets,Gain,CashPaid(Deferredgain)Gainsarenotrecognized.(becausetheearningprocessisnotcomplete.)Thenewasset’scost=thebookvalueoftheoldasset+theamountpaid(=thefairvalueofthenewasset-deferredgain)Example4(page169)32SimilarAssets,Gain,CashPaid

(Deferredgain)Land#1(You) Land#2BV $80,000 FMV $120,000FMV 90,000Gain=$10,000deferredcashpaid$15,000Torecord:

Land#2 (BV+cash) Land#1 80,000 Cash 15,00095,00033SimilarAssets

(Deferredgain)DaviscompanyexchangesFordcarsforGMcarsfromNertzcompany.FairvalueofFordcars: $160,000.BookvalueofFordcars: $135,000 (Cost,$150,000;Accu.Depr,$15,000)CashpaidtoNertz: $10,000FairvalueofGMcars:($160,000+$10,000) =$170,000RecordthepurchaseinDavis’books.34SimilarAssets(Deferredgain)Cash,$10,000plusFordcars,FMV=$160,000Davisdefersgain==>FMVlessbookvalue=$25,000DavisNertzGMcars,FMV=$170,00035SimilarAssets(Deferredgain)GMcars Accu.Dep(Ford) 15,000Fordcars(old) 150,000Cash 10,000FairvalueofGMcars $170,000 Gaindeferred ($25,000)

GMcars(basis) $145,000(or:BV+cashpaid=135000+10000=145000) 145,00036SimilarAssets,Gain,CashReceived

(Partialgain)DaviscompanyexchangesFordcarsforGMcarsfromNertzcompany.FairvalueofFordcars: $160,000.CashpaidtoNertz: $10,000FairvalueofGMcars:($160,000+$10,000) $170,000BookvalueofGMcars: $136,000 (Cost,$200,000;Accu.Depr, $64,000)RecordtheexchangeinNertz’sbooks.37Cash,$10,000plusFordcars,FMV=$160,000Nertz:TotalGain:FMVlessbookvalue=$34,000DavisNertzGMcars,FMV=$170,00038

SinceNertzreceivescash(boot)aspartoftheexchange,Nertzrecognizespartialgainasfollows:FMVlessBookvalue=Realizedgain $170,000-$136,000=$34,000Recognizedgain:(nextslide)39

Nertzrecognizespartialgainasfollows:(boot/totalconsideration)*Realizedgain($10,000/$170,000) *$34,000=$2,000.Totalgainlessgainrecognized=deferredgain

$34,000less$2,000=$32,00040

Fordcars Accu.Dep(GM) 64,000Cash 10,000GMcars(old) 200,000Gainondisposal 2,000FairvalueofFordcars $160,000Gaindeferred ($32,000)

Fordcars(basis) $128,000128,00041

Exercise:page180,T12(caseA)42EXERCISE12(CASEA)(1)entryincompanyM:AssetN2500Accu.Dpre.5500AssetM8000

(1)entryincompanyN:AssetM2800Accu.Dpre.4800Loss…600AssetN8200(2)entryincompanyM:AssetN3300Accu.Dpre.5500AssetM8000Cash800(2)entryincompanyN:AssetM2644Accu.Dpre.4800Cash800AssetN8200Gain…4443DissimilarAssetsForexample:Soldatruckwithacostof$34,000,A/Dof$23,000forcashof$6,000andapieceoflandwithaFMVof$9,000.Torecord:

A/D 23,000Cash 6,000Land Truck 34,000 Gain 4,0009,00044DissimilarAssetsYourtruckforLandCost $80,000 FMV$60,000A/D (10,000)BV 70,000Torecord:A/D 10,000Loss 10,000Land Truck 80,00060,00045DissimilarAssetsAmbercompanyexchangesanumberoftrucksforlandfromBecktelcompany.Fairvalueoftrucks: $49,000.Bookvalueoftrucks: $42,000 (Cost,$64,000;Accu.Depr,$22,000)CashpaidtoBecktel: $17,000RecordtheexchangeinAmber’sbooks.46

AmberBecktelLand,FMV=$66,000Cash,$17,000plusTrucks,FMV=$49,000Amberrecognizesgain=FMVlessBookvalue=$7,00047

Land Accu.Dep(Trucks)$22,000Trucks $64,000Cash $17,000Gainondisposal $7,00066,00048

DissimilarAssets:gainsSee171Exercise:page180,T12(caseB)49EXERCISE12(CASEB)(1)entryincompanyA’book:AssetB4500Accu.Depr.(A)7000AssetA10000Gain…1500(1)entryincompanyB’book:AssetA4500Accu.Depr.(B)10500AssetB14000(2)entryincompanyA’book:AssetB5700Accu.Depr.(A)7000AssetA10000Cash1200Gain…1500(2)entryincompanyB’book:AssetA4500Accu.Depr.(B)10500Cash1200AssetB14000Gain……220050Doestheexpenditureincreasecapacityorefficiencyorextendusefullife?CapitalExpenditures:RecordanassetExpenses:RecordanexpenseCapitalExpendituresversus

RevenueExpendituresYesNo51CapitalExpendituresversus

RevenueExpendituresCapitalExpenditures

-Majoradditions-Betterments-ExtraordinaryrepairsRevenueexpenditures

Ordinaryrepairs52Majoradditions

Majoradditionstoassetsincludesuchthingsasaddinganewwingtoafactorybuildingoranewfloortoanofficebuilding.

Suchexpendituresshouldbedebitedtotheappropriateassetaccounts.53Betterments

Bettermentsarecapitalexpendituresthatimprovethequalityorutilityoftheasset.Forexample,replacingmarrowdoorswithwider,automaticdoorstoallowaccessbythehandicapped.

Thecostandaccumulateddepreciationoftheolddoors,ifavailable,shouldberemovedfromtheaccountsandthecostofthenewdoorsshouldbeaddedtotheassetaccount.54ExtraordinaryrepairsExtraordinaryrepairsarecapitalexpendituresthatextendtheusefullifeoftheassetorincreaseitsestimatedsalvagevalue.JournalentryofExtraordinaryrepairsis:

accumulateddepreciation-equipment***cash***Example:page17255D