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Chapter 9: 1RQ (page 525)

Define property, plant, and equipment. Provide some examples.

Short Answer

Expert verified

Property, plant, and equipment are reported on the balance sheet at book value. Companies may choose to report plant assets as a single amount, with a note to the financial statements that provide detailed information, or companies may provide detailed information on the face of the statement.

IFRS permits the presentation of plant assets at their fair market value because the market value may be more relevant and thus more helpful to readers of financial statements. These are the tangible assets that typically have a life of more than one year.

Step by step solution

01

Definition of Property, Plant, and Equipment

Property, plant, and equipment are also called fixed assets. It means thatthe company's physical assets cannot be quickly liquidated or sold.Tangible assets are depreciated, whereas intangible assets are amortized, and it's vital to record in the balance sheet.

02

Examples of property, plant, and equipment are as follows

  • Property: Property is a tangible asset, the term describing anything that a person or a business has legal. Examples of property are vehicles, furniture, and industrial equipment.
  • Plant: A plant is a Tangible asset, and it provides value to the company as a fixed asset; examples of plant assets are Machinery, Land, Land maintenance, and furniture and fixtures.
  • Equipment: Equipment is a fixed asset a company uses in its business operations example of equipment are repairs, machinery, etc.

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Most popular questions from this chapter

Making a lump-sum purchase of assets Maplewood Properties bought three lots in a subdivision for a lump-sum price. An independent appraiser valued the lots as follows:

Lot

Appraised Value

1

\(144,000

2

96,000

3

240,000

Maplewood paid \)355,000 in cash. Record the purchase in the journal, identifying each lot鈥檚 cost in a separate Land account. Round decimals to two places, and use the computed percentages throughout.

Accounting for depletion of natural resources Ajax Petroleum holds huge reserves of oil assets. Assume that at the end of 2018, Ajax Petroleum鈥檚 cost of oil reserves totaled $27,000,000, representing 3,000,000 barrels of oil.

Requirements

  1. Which method does Ajax Petroleum use to compute depletion?
  2. Suppose Ajax Petroleum removed and sold 500,000 barrels of oil during 2019. Journalize depletion expense for 2019.

Which depreciation method ignores residual value until the last year of depreciation? Why?

Computing first-year depreciation and book value

On January 1, 2018, Air Canadians purchased a used airplane for \(37,000,000. Air Canadians expects the plane to remain useful for five years (4,000,000 miles) and to have a residual value of \)5,000,000. The company expects the plane to be flown 1,400,000 miles during the first year.

Requirements

1. Compute Air Canadians鈥檚 first-year depreciation expense on the plane using the following methods:

a. Straight-line

b. Units-of-production

c. Double-declining-balance

2. Show the airplane鈥檚 book value at the end of the first year for all three methods.

Plant assets are recorded at historical cost. What does the historical cost of a plant asset include?
See all solutions

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