Intermediate Accounting

IFRS Edition
Kieso, Weygandt, Warfield
Fourth Edition

Chapter 10
Acquisition and Disposition of Property, Plant, and
Equipment
Prepared by
Coby Harmon
University of California, Santa Barbara
Westmont College
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Learning Objectives

After studying this chapter, you should be able to:

LO 1 Identify property, plant, and equipment and its related costs.
LO 2 Discuss the accounting problems associated with the
capitalization of borrowing costs.
LO 3 Explain accounting issues related to acquiring and valuing
plant assets.
LO 4 Describe the accounting treatment for costs subsequent to
acquisition.
LO 5 Describe the accounting treatment for the disposal of
property, plant, and equipment.

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PREVIEW OF CHAPTER 10

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 Learning Objective 4
Describe the accounting treatment for costs
subsequent to acquisition.

LO 4 Copyright ©2020 John Wiley & Sons, Inc. 4

Costs Subsequent to Acquisition

Recognize costs subsequent to acquisition as an asset when

the costs can be measured reliably and it is probable that the
company will obtain future economic benefits.
Evidence of future economic benefit would include increases
in
1. useful life,
2. quantity of product produced, and
3. quality of product produced.

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Costs Subsequent to Acquisition
Major Types of Expenditures
Additions. Increase or extension of existing assets.
Improvements and Replacements. Substitution of a better
or similar asset for an existing one.
Rearrangement and Reorganization. Movement of assets
from one location to another.
Repairs. Expenditures that maintain assets in condition for
operation.

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Summary of Costs Subsequent to
Acquisition of Property, Plant, and
Equipment

ILLUSTRATION 10.19

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 Learning Objective 5
Describe the accounting treatment for
the disposal of property, plant, and
equipment.

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Disposition of Property, Plant, and
Equipment
A company may retire plant assets voluntarily or dispose of
them by
• Sale,
• Exchange,
• Involuntary conversion, or
• Abandonment.
Depreciation must be taken up to the date of disposition.

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Sale of Plant Assets
Updating Depreciation to Date of Sale

Illustration: Barret Group recorded depreciation on a

machine costing €18,000 for nine years at the rate of €1,200
per year. If it sells the machine in the middle of the tenth
year for €7,000, Barret records depreciation to the date of
sale as:

Depreciation Expense (€1,200 × ½) 600

Accumulated Depreciation — Machinery 600

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Sale of Plant Assets
Journal Entry to Record Sale of Asset
Illustration: Barret Group recorded depreciation on a machine
costing €18,000 for nine years at the rate of €1,200 per year. If
it sells the machine in the middle of the tenth year for €7,000,
Barret records depreciation to the date of sale. Record the
entry to record the sale of the asset:

Cash 7,000
Accumulated Depreciation — Machinery 11,400
Machinery 18,000
Gain on Disposal of Machinery 400

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Involuntary Conversion
Sometimes an asset’s service is terminated through some
type of involuntary conversion such as fire, flood, theft, or
condemnation.
Companies report the difference between the amount
recovered (e.g., from a condemnation award or insurance
recovery), if any, and the asset’s book value as a gain or loss.
They treat these gains or losses like any other type of
disposition.

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Involuntary Conversion Example
Illustration: Camel Transport Corp. had a manufacturing plant located on company property that
stood directly in the path of a tornado. As a result of the tornado, which occurred on May 16, 2022,
the plant was completely destroyed. Camel was eventually able to reach a settlement with its
insurance company for the full fair value of the plant. The settlement was reached on March 18,
2023. At the time of the tornado, the building had a carrying value of $3,500,000 (original cost of
$6,000,000 less accumulated depreciation of $2,500,000). The amount of the settlement with the
insurance company was $8,000,000. Camel made the following entries.

2022
May 16 Loss from Tornado 3,500,000
Accumulated Depreciation ─ Buildings. 2,500,000
Buildings 6,000,000
2023
Mar. 18 Cash 8,000,000
Gain from Insurance Settlement 8,000,000

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Copyright
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