Financial Accounting: Plant Assets & Intangibles

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• published: 30 May 2013
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Introduction to Financial Accounting Plant Assets & Intangibles (Chapter 9) March 27th, 2013 by Professor Victoria Chiu The lecture begins with the Professor briefly reviewing the topic she discussed last class - how accounts receivable are written on the balance sheet (under the net of allowances method). She goes on to display an illustration of a partial balance sheet. With that, the Professor moves on to Chapter 9 - Plants Assets & Intangibles. After giving the class a brief overview of the chapter's primary learning objectives, the Professor goes on to describe and define the general characteristics of plant assets. An example of these characteristics is that they are used in business and unlike other assets (like materials and inventory) are not sold. Following this, the different classifications of plant assets are covered (real, tangible, natural resources, intangible assets). With the different types of plant assets having been established, the Professor goes on to explain the different expenses associated with each type of plant asset. ---(1) Tangible assets are depreciated. ---(2) Natural resources are depleted. ---(3) Intangible assets are amortized. Following this, the Professor goes on to explain how to measure the cost of a plant asset. The cost principle is explained, which states that despite changes in market value, we carry an asset ("carry" refers to the price we have recorded in our books) at its historical cost (the cost we initially paid for it, without factoring in discounts). The Professor then goes on to show examples of tangible assets (land and land improvements, buildings, machinery, equipment, furniture, fixtures). It is also emphasized that land, despite being a tangible asset, is not depreciated - it is unique in this regard, as we assume it has an infinite life for accounting purposes. While visiting the topic of land's unique characteristics, the Professor also shows how to measure the cost of land (as well as the journal entries involved). Although land is not subject to depreciation, land improvements are. The Professor gives examples of land improvements, as well as the journal entries involved when recording newly acquired land improvements (such as fences, pavement, lighting, signs). Following this, the Professor goes on to give examples of expenses related to buildings (both buildings constructed and buildings purchased), machinery & equipment, and furniture & fixtures. After going over the minor expenses related to tangible assets, the Professor moves on to describe depreciation (definition-wise) and the types of accounts involved (accumulated depreciation, depreciation expense). The factors involved in measuring depreciation are discussed as well as the three primary methods of depreciation. ---(1) Straight-line: Divide the historical cost by the amount of periods (for example, 10 years) to find the depreciation per period. ---(2) Unit-of-production: Assign a piece of equipment a certain amount of items it can produce in its life (for example, a given machine can produce 1,000 units in its entire life). The equipment is then depreciated based on how many units it has produced out of the total it can possibly produce over its useful life. ---(3) Double-declining-balance: Similar to straight line, except the asset is depreciate more quickly at the beginning of its useful life, and is depreciated less and less as it ages. -----QUICK NAVIGATION----- Video Begins with Accounts Receivable on the Balance Sheet (from previous lecture / chapter) CHAPTER 9 BEGINS 3:25 Overview of Learning Objectives: 3:45 Characteristics of Plant Assets: 5:51 Plant Assets Classification: 10:17 Plant Assets & Their Related Expenses: 14:43 Measuring Cost of Plant Asset: 17:58 Cost Principle: 18:01 Tangible Assets & its Costs: 22:34 Land: 25:46 Land - Measuring the Cost: 27:48 Land Improvements: 31:32 Buildings: 33:53 Machinery & Equipment: 36:21 Furniture & Fixtures: 42:47 Depreciation: 43:16 Measuring Depreciation: 48:05 Comparing Depreciation Methods 51:09 Straight-Line Method: 52:07 Net Book Value: 54:45 Units-of-Production Method: 58:02 Double-declining Balance Method: 1:00:57