8 Property, Plant And Equipment.ppt

Summary of Productive Asset Exchanges Summary of Productive Asset Exchanges Summary of Productive Asset Exchanges Capitalization of Interest Capitalization of Interest Capitalization of Interest Capitalization of Interest Extending the life of the asset. Improving the productivity. Producing the same product at lower cost. Increasing the quality of the product. Improvements and Replacements Improvements and Replacements Improvements and Replacements 6. Disposal of Property, Plantand Equipment 7. Depreciation and depletion Asset cost Residual or salvage value Useful life Method of cost allocation Activity (or use) methods Time-based methods a. Straight-line b. Accelerated (declining charge) (1) Sum-of-the-years’-digits (2) Declining balance Recording Depreciation Conceptual Evaluation of Depreciation Methods Depreciation for partial periods Depreciation for partial periods Depreciation for partial periods Disclosure requirements Depreciation expense for the period. Balances of major classes of depreciable assets, by nature or function, at the balance sheet date. Accumulated depreciation, either by major classes of depreciable assets or in total, at the balance sheet date. A general description of the method or methods used in computing depreciation with respect to major classes of depreciable assets. Depletion Depletion Intermediate Accounting 8 Property, Plant And Equipment Intermediate Accounting 8 Property, Plant And Equipment Capitalized Interest, 2005 $1,500,000 x 10% = $150,000 $1,000,000 x 12.6% = $126,000 $276,000 (12% x $4,000,000/$10,000,000) + (13% x $6,000,000/$10,000,000) Amounts borrowed for other purposes: $4 million at 12% and $6 million at 13% Intermediate Accounting 8 Property, Plant And Equipment Fixed Overhead Costs Allocate a portion of total fixed overhead to the self-constructed asset. Include only incremental fixed overhead in the cost of the self-constructed asset. Include no fix