Plant Assets

{Fixed Assets}

Assets acquired for use in business operations & not for resale to customers
Such as
✓ Land
✓ Buildings
✓ Equipment
✓ Furniture
✓ Trucks
✓ Machines

Characteristics of Plant assets:

1. They have physical existence
2. Acquired for use in operations not for sale.
3. Are expected to provide service for a long number of years.

Any of the long term assets pass through 3 stages:

1. Acquistion 2. Depreciation 3. Disposal

‫سوف نعرف كيف‬ ‫سوف تنتاول طرق حساب‬ ‫سوف تناول كيفية تحديد الربح‬
‫تحسب تكلفة األصل‬ ‫اهالك األصول الثابتة‬ ‫او الخسارة وتسجيل عملية البيع‬
 1. Acquisition of Plant Assets
‫ في يوم الشراء ؟؟؟‬Asset ‫ازاي تحسب تكلفة ال‬

General Rule:
✓ The Cost of any asset = All necessary expenditures to acquire the

asset & to make it ready for its use.

 Acquisition of Land:
✓ The cost of land includes all expenditures required to make it ready for its
Intended use. Such as purchase price, closing costs, commissions,............

➢ Example (1):
Cairo Co. purchased a piece of land at $ 100,000 cash price and paid the following
expenditures:
- Registration and legal expenses $ 1,000
- Commission to real state agency $ 5,000
- Cost of grading Land $5,000
- $ 5000 for removing an old building, and the removed items was sold for $ 1000

Required: Calculate the Cost of Land & Record the necessary entries.

Solution
 The cost of land will be:
Purchase price $ 100,000
+ Registration expenses (legal exp.) 1,000
+ Commission (Broker’s fees) 5,000
+ Cost of grading Land 5,000
+ Net cost of removing an old building 4,000
(5000- 1000)
Cost of land $ 115,000
 The Entry will be:
Land 115,000
Cash 115,000

Land Improvements:
• Such as fences, parking lots (drive ways), landscaping.
• Should be recorded in a separate account which called “Land Improvements”.
• The reason of that is because these additions have limited useful lives and should be
subject to Depreciation.
  Acquisition of Building

Constructing a Building Buying a Building

✓ Cash paid to constructors(developer) ✓ Cash price
✓ Permission cost ✓ Legal fees
✓ Excavation cost ✓ Registration fees
✓ Architect's and designer's fees ✓ Commission
✓ Insurance cost during construction. ✓ Cost of remodelling
✓ Interest paid on money borrowed to
finance building during construction.

➢ Example {2}:
Cairo Co. Signed a construction contract with arab Co. for a new building which will be
finished in one year:
➢ Cash paid to arab co. (Constructors) $ 100,000.
➢ Design cost $ 20,000.
➢ Permission cost $ 5,000
➢ Excavation Cost $10,000
➢ Insurance policy on the building for 3 years $ 30,000

Required: Calculate the cost of the Building.

Solution
 The cost of the Building:
Cash paid to const. $ 100,000
+ Design cost 20,000
+ Permission cost 5,000
+ Excavation Cost 10,000
+ Ins. Policy for one year 10,000
Total cost 145,000

 The Entry will be:
Building 145,000
Cash 145,000
  Acquisition of Equipment
The Cost of Equipment includes:
✓ Purchase price.
✓ Transportation (Freight) (delivery) charges.
✓ Insurance during transportation {transit}.
✓ Sales tax.
✓ Unloading Cost.
✓ Assembly cost & Installing cost.
✓ Testing costs & Cost of conducting trial runs.

➢ Example {3}:
Cairo Company purchased equipment and paid the following:

o Purchase price $100,000

o Sales tax 10%
o Transportation charges (F.O.B shipping point) 5,000
o Commission 2,000
o Insurance while Transit 500
o Installing & testing costs 10,000
o Insurance after installment 4,000
o Repair expense After one month of use 3,000

Required:
➢ Determine the cost of equipment.

Solution
The cost of Equipment:
Purchase price $100,000
Sales tax 10% (100000x 10%) 10,000
Transp. Charges 5,000
Commission 2,000
Ins. While Transit 500
Installing & testing costs 10,000
Total Cost $ 127,500

Note:
Insurance after installment & repair expense are not
necessary to make the new equipment ready for use.

The Entry will be:

Equipment 127,500
Cash 127,500
 HW
Q1 : Cairo Co. Signed a construction contract with arab Co. for a new building which will
be finished in one year:
➢ Cash paid to arab co. (Constructors) $ 500,000.
➢ Design cost $ 30,000.
➢ Permission cost $ 40,000
➢ Excavation Cost $10,000
➢ Insurance policy on the building for 3 years $ 60,000

Required:
➢ Calculate the cost of the Building.

Q2 :Cairo Company purchased equipment and paid the following:

o Purchase price $400,000
o Sales tax 10%
o Transportation charges (F.O.B shipping point) 20,000
o Commission 5,000
o Insurance while Transit 4000
o Installing & testing costs 16,000
o Insurance after installment 8,000
o Repair expense After one month of use 7,000
Required:
➢ Determine the cost of equipment.