PLANT ASSETS

Plant asset – for operation and not for sale. Long term prepaid expenses. Record at
cost. Cost include purchase price, freight, installation, unpacking, assembling,
testing cost, proper permit, modification and customization, interest DURING the
period. Damaged during, expense account.
Freight in refers to the cost of transporting raw materials to the business, while
freight out refers to the cost of shipping finished goods to customers. (selling
expense)
Intangible asset – long lived asset that is used for operation but do not have
physical substance such as patent, licenses, franchise and goodwill.
Cost determination:
Land – accrued tax, clearing, draining, demolition and removal cost less salvaged
value, government assessment such as roadway, sidewalk, escrow fees
Land improvement – materials, labor, and overhead.
Building – commissions, reconditioning cost
Equipment – freight, insurance installation, reconditioning and testing cost.
Basket purchase - two or more assets are acquired at single price using relative
fair market values.
Depreciation – cost allocation that assign original cost to periods benefitted.
Recorded in a period-ending adjusting entry. An expense deduction to revenues. To
write off the original cost of asset.
- Plant refers to “building”
- Carrying amount / book value / undepreciated cost – cost minus accumulated
dep
- Depreciable amount – cost less salvage value
- Salvage value – expected to be received when asset is sold at the end of
useful life
Depreciation expense – determinant of net income in SCI
Accumulated depreciation - contra-asset account, offset against cost of asset.
Carrying amount – equal to asset account balance.
Straight line method – time
Units of production method – use. Formula for SL and UP is the same.
Natural resources – physically consumed or waste away and recorded at cost.
This cost must be written off as the asset is extracted.
Depletion – same as depreciation. Cost allocation that assigns the cost of natural
resources over periods benefitted.
Accelerated depreciation – assign more depreciation to earlier years than later
years.
Declining balance method – carrying amount x fixed rate. Sa last year, carrying
amount less salvage value to get the year’s depreciation.
Depreciation for income tax purposes – must be computed in accordance with
income tax law.
Modified accelerated cost recovery system (MACRS) - income tax dep in US
to allow taxpayers to deduct cost of asset acquired.
Revenue expenditure – long-term operating assets such as ordinary repairs and
maintenance benefitting only 1 year.
Capital expenditure – long term operating assets that increase productive life and
capacity, added to cost of asset.
Land improvements – road, sidewalk, fence. And depreciated over useful lives.
Limited life.
Impairment – decline in value of longterm operating asset. Both reduction in
balance sheet and SCI.
Impairment loss – non-operating expense, decrease in value of PPE and in net
income. carrying amount exceed recoverable amount (net fair value or value in use)
the difference is the impairment.
net fair value – fair value of asset less disposal cost.
Value in use – value of asset that is the present value of expected future cash flows
generated by asset.
Accumulated impairment losses – contra account of PPE to reduce its value to the
recoverable amount.
Disposal of PPE
If cost is not completely depreciated, loss on disposal equal to carrying amount.
Loss means didn’t record enough dep exp. Gain means too much dep exp
recognize.
Sale of PPE
If sale price exceeds carrying amount, gain. If sale price is less than carrying
amount, loss.
2 factos of gain or loss amount
1. amount cash received from sale
2. carrying amount of asset at sale
2 reasons why carrying amount vary from market price
1. market value of asset is not intended to show on FS
2. difficult to estimate salvage and useful life.

Intangible asset
Patent – 20 years plus life. Exclusive right granted by national government enabling
inventor to control manufacture over period of time.
- Include purchase price, filling, and registry fees. Research stage is NOT
included.
Trademark – distinctive name, symbol that distinguishes a product from similar
product.
Copyright – exclusive right that permits an author to sell, license his work over
time. 50 years plus life.
Franchise – record the cost of franchise NOT VALUE. License is form of
franchise.
Goodwill – when business valued at more than the fairmakret value of net assets.
Homegrown is not recognize. Kapag bumili ka lang ng company.
Amortization – intangible asset na depreciation. Straight line usually ginagamit.
Example: goodwill and broadcast license are intangible asset and has indefinite
life
Impairment of intangible asset – estimated useful life has changed and
intangible asset has impaired.
Intangible asset - recognize in FS if they are purchased through arm’s length
transaction.
Fixed asset turnover – sales over average fixed asset (PPE). Measures how
efficient in using PPE.
Commercial substance – if future cash flows change as a result of exchange.
to determine new asset: FMV of asset given up + cash paid – cash received
FMV of asset received; BV of asset given up
To determine loss/gain – trade in allowance - BV of asset given up
- asset received – BV of asset given up – cash paid
Revaluation model – carrying amount of asset after revaluation is its fair value on
the revaluation date less subsequent accumulated dep and losses.
Revaluation gain (surplus) – other comprehensive income, an equity account,
not part of income.
Revaluation loss – recognize in determining income.
The carrying amount of asset after reval should not differ materially on the FV of
asset on the same date.
Self-constructed asset – purchased assets are recorded at cost including labor,
overhead (electricity, insurance, salaries), and interest. Also called
capitalized interest.

Williams
Units of output and SYD (lies bet double and 150 and seldom use for income tax
purposes) are accelerated method
MACRS is based on declining balance method or accelerated and usually not in
conformity with GAAP
Decelerated depreciation – less dep ex in earlier years.
Gain in commercial substance – not taxable income

Goodwill – fmv of nia, multiply sa rate of return then subtract to actual net income.
Or value of business as a whole then subtract the FMV of NIA
Net realizable value – market value – cost of sale/disposal
cash is reported in the financial statements at its face value, marketable securities
at their market value, accounts receivable at their net realizable value (i.e., net
amount of cash expected to be collected), inventories at the lower-of-cost-or-
market, and plant assets at cost less accumulated depreciation.