Accounting for Plant Assets

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Chapter 8

• Accounting for Plant Assets

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• Plant asset record a sheet that we create when
  we buy the plant asset and it helps keep track of
  the depreciation per year, accumulated
  depreciation, and the book value of the asset

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More Definitions

• Real Property Land and anything attached to it
  (that is why we call it real estate)
• Personal Property All property not classified
  as real property
• Assessed Value is the value of an asset
  determined by tax authorities for the purpose of
  calculating taxes

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Paid cash for property tax
Feb 1. Paid cash for property tax, 3250. Check
No. 122
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Section 8-2Depreciation

• Original Cost
• The value the plant asset was to us when we
  purchased it.
• Estimated Salvage Value
• What we believe the asset will be worth when we
  can not depreciate it any more.
• Estimated Useful Life
• How many years we are allowed to depreciate the
  asset (determined by the government)

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Straight-line method of depreciation

• The asset decreases by the same value each year.
• Original cost
• -Estimated Salvage Value
• Estimated Total Depreciation
• Divided by useful years
• Annual Depreciation expense

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Original cost 2000 -Estimated
Salvage Value 175 Estimated Total
Depreciation 1825 Divided by useful
years 5 Annual Depreciation
expense 365 per year
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Our plant asset record would look something like
this if we bought the asset at the beginning of
the year.
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Now remember at the end of each year we have to
adjust or bring our accounts up to date.
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Partial year depreciation

• Annual Depreciation 365
• Divided by months in year 12
• Monthly Depreciation 30.42 per month
• X number of months used 5
• Partial Year Depreciation 152.10

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8-3 Disposing of a plant asset

• Three ways in which we can dispose of a plant
  asset
• Is fully depreciated and has no value to us
• We sell it for more than book value
• We sell it for less than book value

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How do we find out how much it is for us?
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What are things we need to do in order to write
off the asset.

• We need to record any depreciation that has
  happened up to the point when we sell something.
• We need to write off the original cost of the
  asset.
• We need to write off the accumulated depreciation
  on the asset
• We need to record any cash or asset received from
  the transaction

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• June 30, 2006 Discarded office table original
  cost 200 total accumulated depreciation through
  December 31, 2005, 140 additional depreciation
  to be recorded through June 30, 20.00 Memorandum
  92

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What is important about this transaction

• June 30, 2006 Discarded office table original
  cost 200 total accumulated depreciation through
  December 31, 2005, 140 additional depreciation
  to be recorded through June 30, 20.00 Memorandum
  92

Lets go back to the slide where it tells us what
we need to record.
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What are things we need to do in order to write
off the asset.

• We need to record any depreciation that has
  happened up to the point when we sell something.
• We need to write off the original cost of the
  asset.
• We need to write off the accumulated depreciation
  on the asset
• We need to record any cash or asset received from
  the transaction

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What is important about this transaction

• June 30, 2006 Discarded office table original
  cost 200 total accumulated depreciation through
  December 31, 2005, 140 additional depreciation
  to be recorded through June 30, 20.00 Memorandum
  92

Lets go back to the slide where it tells us what
we need to record.
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June 30, 2006 Discarded office table original
cost 200 total accumulated depreciation through
December 31, 2005, 140 additional depreciation
to be recorded through June 30, 20.00 Memorandum
92
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Selling a plant asset
January 4, 2006, Received Cash from the sale of a
fax machine, 185 original cost, 600 total
accumulated depreciation through December of 2005
400 Receipt No. 60
Because of the date there is no additional
accumulated depreciation so there is no need for
an adjustment.
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Trading a Plant Asset
June 27, Paid cash , 850 plus old counter for
new store counter original cost of old counter
1000 total accumulated depreciation through
June 27 765 Memo 130 and Check No. 154

• Remove the original cost of the old plant asset
  and its related accumulated depreciation
• Recognizes the cash paid
• Record the new plant asset at it original cost

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Selling Land and Buildings
January 2, 2006 Fidelity Company sold land with a
building for 97,000 cash original cost of land
25,000 original cost of building 150,000 total
accumulated depreciation on building through
December 31, 2005 85,000 Receipt No. 105
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8-4 Other methods of Calculating Depreciation
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Declining Balance Method of Depreciation
Original Cost 2,000 Estimated Salvage Value
175 Estimated Life 5 years
Total Dep / Est. Useful years X 2 Declining
Balance Rate
100 / 5 20 x 2 40
We can not go below what the estimated salvage
value is..
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Sum of the Years Digits
Original Cost 2,000 Estimated Salvage Value
175 Estimated Life 5 years
We add up all of the years and use it as a
fraction of how much should be depreciated over
that year.
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Production-Unit Method of Depreciation
This method is used when an asset like a truck is
used a lot.
Orig cost 18,200 Est. Salvage
Value -2000 Total Depreciation 16,200 Estima
ted Useful life (divide) 90,000
Miles Depreciation Rate .18 per mile
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M.A.C.R.SModified Accelerated Cost Recovery
System

• A depreciation method required by the IRS to be
  used for income tax calculation purposes for most
  plant assets in service after 1986

Rates are given by the IRS
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Last Slide!!!!!!!!!!
Original Cost 100,000 Estimated Salvage
Value -12,250 Estimated Total Value of
Coal 87,750 Estimated Tons of Recoverable coal
divide 50,000 Depletion Rate per Ton of
Coal 1.755
Depletion The decrease in the value of a plant
asset because of the removal of a natural resource