Question

1. Companies have a significant amount of investment in long-lived assets, which include property, plant, and equipment (commonly referred to as plant assets); and intangible assets. We will also discuss different types of liabilities and understand how to account for and report those liabilities. Let's begin by talking about plant assets. Can you tell us what kind of plant assets are used in your company or place of business? Do you have an estimate of the amount invested in those plant assets?

2. What would be an example of capital expenditure?

3. What are some of the costs associated with the purchase of equipment?

4. If you were a controller of a company, which depreciation method would you apply and why?

Answer 1

1. Plant assets meaning: A plant asset is an asset with a useful life of more than one year that is used in producing revenues in a business's operations.
   Assets used in company as plant assets include land, land improvements, buildings, machinery and equipment, office equipment, furniture, fixtures, vehicles, leasehold improvements, and construction work-in-progress. Plant assets are also referred to as fixed assets and/or property, plant and equipment.
   
2. Cost Assignment or capital expenditure: The correct amount of cost to allocate to a productive asset is based on those expenditures that are ordinary and necessary to get the item in place and in condition for its intended use. Such amounts include the purchase price (less any negotiated discounts), permits, freight, ordinary installation, initial setup/calibration /programming, and other normal costs associated with getting the item ready to use. These costs are termed capital expenditures and are assigned to an asset account. In contrast, other expenditures may arise that are not “ordinary and necessary,” or benefit only the immediate period. These costs should be expensed as incurred. An example is repair of abnormal damage caused during installation of equipment.
   
3. Costs associated with the purchase of equipment: The cost of property, plant, and equipment includes the purchase price of the asset and all expenditures necessary to prepare the asset for its intended use.
   

1. Land: Land purchases often involve real estate commissions, legal fees, bank fees, title search fees, and similar expenses. To be prepared for use, land may need to be cleared of trees, drained and filled, graded to remove small hills and depressions, and landscaped. In addition, old buildings may need to be demolished before the company can use the land. Such demolition expenses are considered part of the land's cost. The cost of land improvements includes all expenditures associated with making the improvements ready for use.
2. Buildings: The cost of buildings includes the purchase price and all closing costs associated with the acquisition of the buildings, including payments by the purchaser for back taxes owed. Remodeling an acquired building and making repairs necessary for it to be used are also considered part of the cost. If a building is constructed for the company over an extended period, interest payments to finance the structure are included in the cost of the asset only while construction takes place. After construction is complete and the building is ready for productive use, interest payments are classified as interest expense.

e) Equipment, vehicles, and furniture: The cost of equipment, vehicles, and furniture includes the purchase price, sales taxes, transportation fees, insurance paid to cover the item during shipment, assembly, installation, and all other costs associated with making the item ready for use. These costs do not include such things as motor vehicle licensing and insurance, however, even if they are paid when a vehicle purchase occurs. Expenses of this type are normal, recurring operational expenses that do not add lasting value to the vehicle

4) Which depreciation method would you apply and why: The most commonly used for plant of assets 4 methods

1. Straight line method
2. Double decline method
3. Units of production
4. Sum of years digits

         If I am the control of the company, I opt for Straight-line method as per accounting purposes and Double decline method for tax purposes.