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1、Chapter 5Property, Plant, and EquipmentLi Ming2013.12Characteristics of Property, Plant, and EquipmentBe held for use and not for investment;Have an expected life of more than one year;Be tangible in nature; do not change their physical characteristics.Idle land or buildings? Goodwill or patents?Det
2、ermining the Cost of Plant and EquipmentA plant asset as a stream of services to be received by the owner over a period of years.A building as advance purchase of many years supply of housing services.These services are utilized and the cost of the plant asset is transferred into depreciation expens
3、e.The cost of plant and equipment includes:all expenditures reasonable and necessary in acquiring an asset and placing it in a position and condition for use in the operation of the business.The cash outlay necessary to acquire the asset plus any expenditure for freight, insurance while in transit,
4、installation, trial runs, and any other costs necessary to make the asset ready for use.Interest expense?If plant assets are purchased on the installment plan or by issuance of notes payable, the interest element or carrying charge should be recorded as interest expense and not as part of the cost o
5、f the plant assets.If a company constructs a plant asset for its own use, interest costs incurred during the construction period are viewed as part of the cost of the asset.企业自营建造的固定资产在交付使用前应负担的长期负债利息，应计入自营工程成本，借记“在建工程”，贷记“长期借款”Fair market valueWhen a stock trades actively, we assume that the fair m
6、arket value of the stock is the best indicator of the value of the transaction.E.g. A Corporation sold land to B Company in exchange for shares of B stock.Land Paid-in capital The cost of Land includes:purchase pricevarious additional costs: commissions to real estate brokers, escrow fees, legal fee
7、s for examining and insuring the title, delinquent taxes paid by the purchaser, and fees for surveying, draining and grading the property.demolition and removal cost less proceeds from salvaged materialsFASB requires companies to be conservative and carry land and other long-lived assets at their or
8、iginal historical cost.Apportionment of a lump-sum purchasebuildings are subject to depreciation and land is not.When land and buildings are purchased for a lump sum, the purchase price must be apportioned between land and buildings.Land Improvementssuch as driveways, fences, parking lots, and sprin
9、kler systemsLand improvements have a limited life and are subject to depreciation.Zollett Manufacturing purchased land next to its factory to be used as a parking lot. The expenditures incurred by the company were as follows: purchase price, $600,000; brokers fees, $48,000; title search and other fe
10、es, $4,400; demolition of a cottage on the property, $16,000; general grading of property, $8,400; paving parking lots, $80,000; lighting for parking lots, $64,000; and signs for parking lots, $12,800. Determine the amounts that should be debited to the Land account and the Land Improvements account
11、.Land account: $600,000+$48,000+$4,400+$16,000+ $8,400Land Improvements: $80,000+$64,000+$12,800BuildingsWhen a building is purchased, costs include the purchase price, closing costs (attorneys fees, title insurance, etc.) and brokers commission.Costs to make the building ready for its intended use
12、include expenditures for remodelling and replacing or repairing the roof, floors, electrical wiring, and plumbing.After the building has been placed in use, ordinary repairs are considered as maintenance expense when incurred.Equipmentconsist of the cash purchase price plus related costs (sales taxe
13、s, freight charges, insurance during transit, expenditures required in assembling, installing and testing the unit)Moter vehicle licenses and accident insurance on company trucks and cars are NOT included in the cost of equipments. They are expenses.Depreciationdepreciable valueresidual value/ termi
14、nal value/ disposal value/ salvage value/ scrap valuethe useful lifeDepreciation is the allocation of the cost of a tangible plant asset to expense in the periods in which services are received from the asset.The journal entry to record depreciation expense(计提折旧时的分录)：Depreciation Expense Accumulated
15、 Depreciation Seperate depreciation and accumulated depreciation accounts are maintained for different types of depraciable assets. These separate accounts help accountants to measure separately the costs of different business activities.（中国会计准则：企业计提的固定资产折旧，应按用途进行分配，借记“制造费用”、“管理费用”、“销售费用”、“其他业务成本”以及
16、“在建工程”等科目，贷记“累计折旧”科目。）Depreciation is a process of cost allocation, not a process of valuation.Two major causes of depreciation: physical deterioration and obsolescence.When should we depreciate the fixed assets? 按月计提折旧;在获得固定资产、达到可使用状态的下月开始，当月获得，当月不计提，下月计提折旧，当月减少（清理）固定资产，当月仍计提折旧，下月不计提！And how to dep
17、reciate fixed assets? Methods of Computing DepreciationStraight-line Method 直线法Units-of-Output Method工作量法Accelerated Depreciation Methods加速折旧法Fixed-Percentage-of-Declining-Balance Method固定比率余额递减法Sum-of-the-Years-Digits Method年数总和法A business is required to always use the same method of depreciation f
18、or all its various assets.Straight-line Method 直线法Annual Depreciation=(Cost-Residual Value) Years of Useful LifeDepreciable Value= Cost-Residual ValueAnnual straight-line rate=100% Years of Useful LifeUnits-of-Output Method工作量法Depreciation per Unit of Output=(Cost-Residual Value) Estimated Units of
19、OutputNot widely used.Accelerated Depreciation Methods加速折旧法It means recognition of relatively large amounts of depreciation in the early years of use and reduced amounts in the later years.Accelerated depreciation rateDepreciation Expense=Remaining Book Value Accelerated Depreciation RateBook Value=
20、cost-accumulated depreciationSum-of-the-Years-Digits Method年数总和法The depreciation rate is stated as a fraction, which gets smaller each year.Denominator: the sum of the numbers which indicates the years of the assets useful life.Numerator: the number of years remaining in the assets useful life as of
21、 the beginning of the current year.Disposal of Plant and Equipment固定资产的清理For fully depreciated asset with no salvage value: Accumulated Depreciation Office Equipment For partially depreciated asset with salvage value: Cash Accumulated Depreciation Machinery Gain on Disposal of Plant Assets Or: Cash
22、Accumulated Depreciation Loss on Disposal of Plant Assets Machinery 中国会计准则要求设置“固定资产清理”科目来核算固定资产清理净损益的情况。该科目借方登记清理过程中发生的各项费用；贷方登记清理过程中发生的各项收入。期末将该科目的余额通过“营业外收入”或“营业外支出”转出至无余额。出售固定资产账面价值的结转：借：固定资产清理 累计折旧 固定资产减值准备 贷： 固定资产 出售固定资产的清理费用：借：固定资产清理 贷：银行存款出售固定资产的收入： 借：银行存款 贷：固定资产清理 应交税费结转出售固定资产的净损益：借：固定资产清理 贷
23、：营业外收入 或或 借：营业外支出 贷：固定资产清理Impairment of Fixed Asset固定资产的减值准备Recoverable amount（固定资产）可收回金额 The carrying amount账面价值： Impairment Loss Accumulated Impairment Losses 中国会计处理分录：借：资产减值损失 贷：固定资产减值准备Reversal of Impairment Loss ：Accumulated Impairment Losses Building Gain in Value of Building Revaluation Surplus （中国会计准则规定：固定资产减值损失一经确认，在以后会计期间不得转回。）Thanks！
