2023 Chapter Two Accounting For Plant Asset

Chapter 2
Plant Assets,
Natural Resources, and
Intangible Assets
Financial Accounting, IFRS Edition
Weygandt Kimmel Kieso
Slide
9-1
Plant
PlantAssets,
Assets, Natural
Natural Resources,
Resources, and
and Intangible
Intangible
Assets
Assets
Natural Intangible Statement

Plant Assets
Resources Assets Presentation
Determining the Accounting for Accounting for Presentation

cost of plant extractable intangibles
assets natural resources Types of
Depreciation Financial intangibles
Revaluation of statement Research and
plant assets presentation development
Expenditures costs
during useful life
Plant asset
disposals
Slide
9-2
Section 11 –– Plant
Section Plant Assets
Assets
Plant assets include land, land improvements, buildings,

and equipment (machinery, furniture, tools).
Major characteristics include:
Purpose - “Used in operations” and not for resale.

Useful life - Long-term in nature and usually
depreciated.
Tangible - Possess physical substance.
Referred to as property, plant, and equipment; plant and

equipment; and fixed assets.
Slide
9-3
Determining
Determining the
the Cost
Cost of
of Plant
Plant Assets
Assets
Land
Includes all costs to acquire land and ready it for use.
Costs typically include:
(1) purchase price;

(2) closing costs, such as title and attorney’s fees;
(3) real estate brokers’ commissions;
(4) costs of grading, filling, draining, and clearing;
(5) assumption of any liens, mortgages, or encumbrances on
the property.
Slide
9-4
SO 1 Describe how the cost principle applies to plant assets.
Determining
Determining the
the Cost
Cost of
of Plant
Plant Assets
Assets
Illustration: Assume that A Company acquires real estate at a

cash cost of Br100,000. The property contains an old warehouse
that is razed at a net cost of Br6,000 (Br7,500 in costs less
Br1,500 proceeds from salvaged materials). Additional
expenditures are the attorney’s fee, Br1,000, and the real estate
broker’s commission, Br8,000. The cost of the land is
___________, computed as follows.
Required: Determine amount to be reported as the cost of the

land.
Slide
9-5
Determining
Determining the
the Cost
Cost of
of Plant
Plant Assets
Assets
Required: Determine amount to be reported as the cost of the
land.
Land
Cash price of property of Br100,000 Br100,000
Net removal cost of warehouse of Br6,000 6,000
Attorney's fees of Br1,000 1,000
Real estate broker’s commission of Br8,000 8,000
Cost of Land Br115,000
Journal Entry
Land 115,000
Cash 115,000
Slide
9-6
Determining
Determining the
the Cost
Cost of
of Plant
Plant Assets
Assets
Land Improvements
All expenditures necessary to make the improvements
ready for their intended use.
Driveways, parking lots, fences, landscaping, and

underground sprinklers.
Limited useful lives.
Expense (depreciate) the cost of land improvements
over their useful lives.
Slide
9-7
Determining
Determining the
the Cost
Cost of
of Plant
Plant Assets
Assets
Buildings
All costs related directly to purchase or construction.
Purchase costs:
Purchase price, closing costs and real estate broker’s
commission.
Remodeling and replacing or repairing the roof, floors,
electrical wiring, and plumbing.
Construction costs:
Contract price plus payments for architects’ fees, building
permits, and excavation costs.
Slide
9-8
Determining
Determining the
the Cost
Cost of
of Plant
Plant Assets
Assets
Equipment
All costs incurred in acquiring the equipment and
preparing it for use.
Costs typically include:
purchase price,
sales taxes,
freight and handling charges,
insurance on the equipment while in transit,
assembling and installation costs, and
costs of conducting trial runs.
Slide
9-9
Determining
Determining the
the Cost
Cost of
of Plant
Plant Assets
Assets
Illustration: Assume A Company purchases factory machinery

at a cash price of Br50,000. Related expenditures are for sales
taxes Br3,000, insurance during shipping Br500, and installation
and testing Br1,000. Determine amount to be reported as the
cost of the machinery. Machinery
Cash price Br50,000
Sales taxes 3,000
Insurance during shipping 500
Installation and testing 1,000
Cost of Machinery Br54,500
Slide
9-10
Determining
Determining the
the Cost
Cost of
of Plant
Plant Assets
Assets
Exercise: Assume that A company purchases a delivery

truck at a purchase price of Br22 000. Related expenditures
are for air conditioning Br1320, painting and lettering
Br500, motor vehicle registration Br350, and a 3-year
accident insurance policy Br1600. The cost of the delivery
truck is ___________________
Slide
9-11
Determining
Determining the
the Cost
Cost of
of Plant
Plant Assets
Assets
Exercise: Assume that A company purchases a delivery truck at

a purchase price of Br22 000. Related expenditures are for air
conditioning Br1320, painting and lettering Br500, motor vehicle
registration Br350, and a 3-year accident insurance policy
Br1600. The cost of the delivery truck is ___________________
Truck
Purchase price Br22,000
Air conditioning 1,320
Painting and lettering 500
Cost of Delivery Truck Br23,820
Slide
9-12
Depreciation
Depreciation
Depreciation is the process of allocating the cost of

tangible assets to expense in a systematic and rational
manner to those periods expected to benefit from the use
of the asset.
Process of cost allocation, not asset valuation.

Applies to land improvements, buildings, and
equipment, not land.
Depreciable, because the revenue-producing ability of
asset will decline over the asset’s useful life.
Slide
9-13
SO 2 Explain the concept of depreciation.
Depreciation
Depreciation
Factors in Computing Depreciation

Illustration 9-6
Cost Useful Life Residual Value
Slide
9-14
SO 2 Explain the concept of depreciation.
Depreciation
Depreciation
Depreciation Methods
Objective is to select the method that best measures an
asset’s contribution to revenue over its useful life.
Examples include:
(1) Straight-line method.

(2) Units-of-Activity method.
(3) Declining-balance method.
Slide
9-15
SO 3 Compute periodic depreciation using different methods.
Depreciation
Depreciation
Illustration: Barb’s Florists purchased a small delivery truck on

January 1, 2011.
Illustration 9-7
Required: Compute depreciation using the following.

(a) Straight-Line (b) Units-of-Activity (c) Declining Balance.
Slide
9-16
Depreciation
Depreciation
Straight-Line
Expense is same amount for each year.
Depreciable cost - cost of the asset less its residual
value. Illustration 9-8
Slide
9-17
Depreciation
Depreciation
Illustration: (Straight-Line Method)
Illustration 9-9
Depreciable Annual Accum. Book

Year Cost x Rate = Expense Deprec. Value
2011 Br 12,000 20% Br 2,400 Br 2,400 Br
2012 12,000 20 2,400 4,800 10,600
8,200
2013 12,000 20 2,400 7,200 5,800
2014 12,000 20 2,400 9,600 3,400
2015 12,000 20 2,400 12,000 1,000
2011 Depreciation expense 2,400

Journal
Accumulated depreciation 2,400
Entry
Slide
9-18
Depreciation
Depreciation
Units-of-Activity
Companies estimate total units of activity to calculate
depreciation cost per unit.
Expense varies based on units of activity.
Illustration 9-10
Depreciable cost is
cost less residual
value.
Slide
9-19
Depreciation
Depreciation
Illustration: (Units-of-Activity Method)
Units Annual Illustration 9-11
of Cost / Depreciation Accumulated Book

Year Activity x Unit = Expense Depreciation Value
2011 15,000 Br 0.12 Br 1,800 Br 1,800 Br 11,200

2012 30,000 0.12 3,600 5,400 7,600
2013 20,000 0.12 2,400 7,800 5,200
2014 25,000 0.12 3,000 10,800 2,200
2015 10,000 0.12 1,200 12,000 1,000

Journal
Entry
Slide
9-20
Depreciation
Depreciation
Declining-Balance
Decreasing annual depreciation expense over the asset’s
useful life.
Declining-balance rate is double the straight-line rate.
Rate applied to book value.
Illustration 9-12
Slide
9-21
Depreciation
Depreciation
Illustration: (Declining-Balance Method)
Declining Annual Illustration 9-13
Beginning Balance Deprec. Accum. Book

Year Book value x Rate = Expense Deprec. Value
2011 13,000 40% Br 5,200 Br 5,200 Br 7,800

2012 7,800 40 3,120 8,320 4,680
2013 4,680 40 1,872 10,192 2,808
2014 2,808 40 1,123 11,315 1,685
2015 1,685 40 685* 12,000 1,000

Journal
Entry
Slide * Computation of Br674 (Br1,685 x 40%) is adjusted to Br685.

9-22
Depreciation
Depreciation
Comparison of Methods
Illustration 9-14
Illustration 9-15
Slide
9-23
Depreciation
Depreciation
Review Question
Depreciation is a process of:
a. valuation.
b. cost allocation.
c. cash accumulation.
d. appraisal.
Slide
9-24
Depreciation
Depreciation for
for Partial
Partial Year
Year
The following four slides are included to illustrate the

calculation of partial-year depreciation expense.
The amounts are consistent with the previous slides
illustrating the calculation of depreciation expense.
Slide
9-25
Depreciation
Depreciation for
for Partial
Partial Year
Year
Illustration: A Plus Company purchased a small delivery truck

on October 1, 2011.
Illustration 9-7
Required: Compute depreciation using the following.

(a) Straight-Line (b) Units-of-Activity (c) Declining Balance.
Slide
9-26
Depreciation
Depreciation for
for Partial
Partial Year
Year
Illustration: (Straight-line Method)
Current
Depreciable Annual Partial Year Accum.
Year Cost Rate Expense Year Expense Deprec.
2011 $ 12,000 x 20% = $ 2,400 x 3/12 = $ 600 $ 600
2012 12,000 x 20% = 2,400 2,400 3,000
2013 12,000 x 20% = 2,400 2,400 5,400
2014 12,000 x 20% = 2,400 2,400 7,800
2015 12,000 x 20% = 2,400 2,400 10,200
2016 12,000 x 20% = 2,400 x 9/12 = 1,800 12,000
$ 12,000
Journal entry:
2011 Depreciation expense 600

Accumultated depreciation 600
Slide
9-27
Depreciation
Depreciation for
for Partial
Partial Year
Year
Illustration: (Units-of-Activity Method) Illustration 9-12
Hours Cost / Annual Accum. Book

Year Used x Unit = Expense Deprec. Value
2011 15,000 Br 0.12 Br 1,800 Br 1,800 Br 11,200
2012 30,000 0.12 3,600 5,400 7,600
2013 20,000 0.12 2,400 7,800 5,200
2014 25,000 0.12 3,000 10,800 2,200
2015 10,000 0.12 1,200 12,000 1,000

Journal
Entry
Slide
9-28
Depreciation
Depreciation for
for Partial
Partial Year
Year
Illustration: (Declining-Balance Method)
Declining Current
Beginning Balance Annual Partial Year Accum.
Year Book Value Rate Expense Year Expense Deprec.
2011 $ 13,000 x 40% = $ 5,200 x 3/12 = $ 1,300 $ 1,300
2012 11,700 x 40% = 4,680 4,680 5,980
2013 7,020 x 40% = 2,808 2,808 8,788
2014 4,212 x 40% = 1,685 1,685 10,473
2015 2,527 x 40% = 1,011 1,011 11,484
2016 1,516 x 40% = 607 Plug 516 12,000
$ 12,000
Journal entry:

Accumultated depreciation 1,300
Slide
9-29
Depreciation
Depreciation
Revising Periodic Depreciation

Accounted for in the period of change and future
periods (Change in Estimate).
Not handled retrospectively.
Not considered error.
Slide
9-31
SO 4 Describe the procedure for revising periodic depreciation.
Depreciation
Depreciation
Illustration: Assume that A Plus Co. decides on January 1,

2014, to extend the useful life of the truck one year because of
its excellent condition. The company has used the straight-line
method to depreciate the asset to date, and book value is
Br5,800 (Br13,000 - Br7,200).
Questions:
1. What is the journal entry to correct
No Entry
the prior years’ depreciation? Required
2. Calculate the depreciation expense
for 2014.
Slide
9-32
Depreciation
Depreciation
Book value, 1/1/14 Br5,800 First,

First,
Residual value - 1,000 establish
establish
Depreciable cost Book
BookValue
Valueat at
4,800
the
thedate
dateof of
Useful life (revised) / 3 years change
changein in
Annual depreciation Br 1,600 estimate.
estimate.
Illustration 9-17
Journal entry for 2014
Depreciation expense 1,600

Slide
9-33
Depreciation
Depreciation
Review Question
When there is a change in estimated depreciation:
a. previous depreciation should be corrected.
b. current and future years’ depreciation should be
revised.
c. only future years’ depreciation should be revised.
d. None of the above.
Slide
9-34
Expenditures
Expenditures During
During Useful
Useful Life
Life
Ordinary Repairs - expenditures to maintain the operating
efficiency and productive life of the unit.
Debit - Repair (or Maintenance) Expense.
Referred to as revenue expenditures.
Example : motor tune up and oil changes, etc
Additions and Improvements - costs incurred to increase
the operating efficiency, productive capacity, or useful life of a
plant asset.
Debit - the plant asset affected.
Referred to as capital expenditures.
Slide SO 5 Distinguish between revenue and capital expenditures,

9-39 and explain the entries for each.
Plant
Plant Asset
Asset Disposals
Disposals
Companies dispose of plant assets in three ways —
Retirement, Sale, or Exchange (appendix).
Illustration 9-19
Record depreciation up to the date of disposal.

Eliminate asset by (1) debiting Accumulated Depreciation, and
(2) crediting the asset account.
Slide
9-40
SO 6 Explain how to account for the disposal of a plant asset.
Plant
Plant Asset
Asset Disposals
Disposals -- Retirement
Retirement
Retirement of Plant Assets

Illustration: Assume that a company retires
its computer printers, which cost Br32,000. The accumulated
depreciation on these printers is Br32,000. The journal entry to
record this retirement is:

Printing equipment
32,000
Question: What happens if a fully depreciated plant asset is still useful
to the company?
Slide
9-41
Plant
Plant Asset
Asset Disposals
Disposals -- Retirement
Retirement
Illustration: Assume that a company discards delivery
equipment that cost Br18,000 and has accumulated
depreciation of Br14,000. The journal entry is:

Loss on disposal 4,000
Delivery equipment
18,000
Companies report a loss on disposal in the “Other income and

expense” section of the income statement.
Slide
9-42
Plant
Plant Asset
Asset Disposals
Disposals
Sale of Plant Assets

Compare the book value of the asset with the proceeds
received from the sale.
If proceeds exceed the book value, a gain on disposal
occurs.
If proceeds are less than the book value, a loss on
disposal occurs.
Slide
9-43
Plant
Plant Asset
Asset Disposals
Disposals -- Sale
Sale
Gain on Disposal
Illustration: Assume that on July 1, 2011, Wright Company sells
office furniture for Br16,000 cash. The office furniture originally
cost Br60,000. As of January 1, 2011, it had accumulated
depreciation of Br41,000. Depreciation for the first six months of
2011 is Br8,000. Prepare the journal entry to record depreciation
expense up to the date of sale.
Depreciation expense 8,000

Accumulated depreciation
8,000
Slide
9-44
Plant
Plant Asset
Asset Disposals
Disposals -- Sale
Sale
Illustration 9-20
Computation of gain on
disposal
Illustration: Wright records the sale as follows.
July 1 Cash 16,000

Office equipment 60,000
Gain on disposal
5,000
Slide
9-45
Plant
Plant Asset
Asset Disposals
Disposals -- Sale
Sale
Loss on Disposal Illustration 9-21

Computation of loss on disposal
Illustration: Assume
that instead of selling
the office furniture for
Br16,000, Wright sells it
for Br9,000.
July 1 Cash 9,000

Office equipment 60,000

Slide
9-46
Exchange
Exchange of
of Plant
Plant Assets
Assets Appendix
Ordinarily, companies record a gain or loss on the

exchange of plant assets.
The rationale for recognizing a gain or loss is that

most exchanges have commercial substance.
An exchange has commercial substance if the

future cash flows change as a result of the
exchange.
Slide
9-47
SO 10 Explain how to account for the exchange of plant assets.
Exchange
Exchange of
of Plant
Plant Assets
Assets
Illustration: A Co. exchanged old trucks (cost Br64,000 less
Br22,000 accumulated depreciation) plus cash of Br17,000 for a
new semi-truck. The old trucks had a fair value of Br26,000.
Cost of old trucks Br64,000

Loss Less: Accumulated depreciation 22,000
Book value 42,000
Treatment
Fair value of old trucks 26,000
Loss on disposal Br16,000
Fair value of old trucks Br26,000
Cash paid 17,000
Cost of new semi-truck Br43,000
Slide
9-48
Exchange
Exchange of
of Plant
Plant Assets
Assets
Illustration: A Co. exchanged old trucks (cost Br64,000 less
Br22,000 accumulated depreciation) plus cash of Br17,000 for a
new semi-truck. The old trucks had a fair market value of
Br26,000.
Prepare the entry to record the exchange of assets by Roland
Co.
Semi-truck 43,000
Used trucks
64,000
Cash
17,000
Slide
9-49
Exchange
Exchange of
of Plant
Plant Assets
Assets
Illustration: Mark Express Delivery trades its old delivery
equipment (cost Br40,000 less Br28,000 accumulated
depreciation) for new delivery equipment. The old equipment
had a fair value of Br19,000. Mark also paid Br3,000.
Cost of old equipment Br40,000

Gain Less: Accumulated depreciation 28,000
Book value 12,000
Treatment
Fair value of old equipment 19,000
Gain on disposal Br 7,000
Fair value of old equipment Br19,000
Cash paid 3,000
Cost of new equipment Br22,000
Slide
9-50
Exchange
Exchange of
of Plant
Plant Assets
Assets
Illustration: Mark Express Delivery trades its old delivery
equipment (cost Br40,000 less Br28,000 accumulated
depreciation) for new delivery equipment. The old equipment
had a fair value of Br19,000. Mark also paid Br3,000.
Prepare the entry to record the exchange of assets by Mark
Express.
Delivery equipment (new) 22,000
Delivery equipment (used) 40,000
Gain on disposal
7,000
Cash
3,000
Slide
9-51
Section 22 –– Natural
Section Natural Resources
Resources
Natural resources consist of standing timber and

resources extracted from the ground, such as oil, gas,
and minerals.
Standing timber is considered a biological asset under
IFRS.
In the years before they are harvested, the recorded
value of biological assets is adjusted to fair value each
period.
Slide
9-52
SO 7 Compute periodic depletion of extractable natural resources.
Resources
IFRS defines extractive industries as those businesses
involved in finding and removing natural resources located in
or near the earth’s crust.
Cost - price needed to acquire the resource and prepare it for
its intended use.
Depletion - allocation of the cost to expense in a rational and
systematic manner over the resource’s useful life.
Depletion is to natural resources as depreciation is to plant

assets.
Companies generally use units-of-activity method.
Depletion generally is a function of the units extracted.
Slide
9-53
Resources
Illustration: Assume that Lane Coal Company invests Br5
million in a mine estimated to have 10 million tons of coal and no
salvage value. In the first year, Lane extracts and sells 800,000
tons of coal. Lane computes the depletion expense as follows:
Br5,000,000 ÷ 10,000,000 = Br.50 depletion cost per ton

Br.50 x 800,000 = Br400,000 depletion expense
Journal entry:
a) Inventory - Coal 5,000,000
Cash
b) Depletion expense 5,000,000
400,000
Slide
9-54 Accumulated depletion
Financial
Financial Statement
Statement Presentation
Presentation
Illustration 9-23
Statement presentation of accumulated depletion
Extracted resources that have not been sold are reported as

inventory in the current assets section.
Slide
9-55
Section 33 –– Intangible
Section Intangible Assets
Assets
Intangible assets are rights, privileges, and competitive

advantages that do not possess physical substance.
Intangible assets are categorized as having either a

limited life or an indefinite life.
Common types of intangibles:
Patents Trademarks and trade

Copyrights names
Franchises or licenses Goodwill
IFRS permits revaluation of intangible assets to fair value, except for goodwill.
Slide
9-56
SO 8 Explain the basic issues related to accounting for intangible assets.
Types
Types of
of Intangible
Intangible Assets
Assets
Patents
Exclusive right to manufacture, sell, or otherwise control
an invention for a specified number of years from the
date of the grant.
Legal life in many countries is 20 years.
Capitalize costs of purchasing a patent and amortize
over its legal life or its useful life, whichever is shorter.
Legal fees incurred successfully defending a patent are
capitalized to Patent account.
Slide
9-57
Accounting
Accounting for
for Intangible
Intangible Assets
Assets
Intangible assets are typically amortized on a straight-line

basis.
Illustration: Assume that National Labs purchases a patent at
a cost of Br60,000. National estimates the useful life of the
patent to be eight years. National records the annual
amortization as follows.
Amortization expense 7,500

Patent
7,500
Slide
9-58
Accounting
Accounting for
for Intangible
Intangible Assets
Assets
Copyrights
Give the owner the exclusive right to reproduce and sell
an artistic or published work.
 plays, literary works, musical works, pictures,
photographs, and video and audiovisual material.
Granted for the life of the creator plus a specified number
of years, which can vary by country but is commonly 70
years.
Capitalize costs of acquiring and defending it.
Amortized to expense over useful life.
Slide
9-59
Accounting
Accounting for
for Intangible
Intangible Assets
Assets
Trademarks and Trade Names

Word, phrase, jingle, or symbol that identifies a particular
enterprise or product.
 Wheaties, Game Boy, Frappuccino, Kleenex, Windows,
Coca-Cola, and Jetta.
Registration provides a specified number of years of
protection, which can vary by country, but is commonly 20
years.
Capitalize acquisition costs.
Renewed indefinitely, no amortization.
Slide
9-60
Accounting
Accounting for
for Intangible
Intangible Assets
Assets
Franchises and Licenses

Contractual arrangement between a franchisor and a
franchisee.
 BP (GBR), Taco Bell (USA), or Rent-A-Wreck (USA)
are franchises.
Franchise (or license) with a limited life should be
amortized to expense over the life of the franchise.
Franchise with an indefinite life should be carried at cost
and not amortized.
Slide
9-61
Accounting
Accounting for
for Intangible
Intangible Assets
Assets
Goodwill
Includes exceptional management, desirable location, good
customer relations, skilled employees, high-quality products,
etc.
Only recorded when an entire business is purchased.
Goodwill is recorded as the excess of ...

purchase price over the fair value of the identifiable net
assets acquired.
Internally created goodwill should not be capitalized.
Slide
9-62
Research
Research and
and Development
Development Costs
Costs
Frequently results in something that a company patents

or copyrights such as:
new product, formula,

process, composition, or
idea, literary work.
 Costs in the research phase are always expensed as

incurred.
 Costs in the development phase are expensed until
specific criteria are met, primarily that technological
feasibility is achieved.
Slide
9-63
Statement
Statement Presentation
Presentation and
and Analysis
Analysis
Presentation Illustration 9-24
Slide SO 9 Indicate how plant assets, natural resources,

9-64 and intangible assets are reported.

2023 Chapter Two Accounting For Plant Asset

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Chapter 2

Natural Intangible Statement

Determining the Accounting for Accounting for Presentation

Plant assets include land, land improvements, buildings,

Purpose - “Used in operations” and not for resale.

Referred to as property, plant, and equipment; plant and

(1) purchase price;

Illustration: Assume that A Company acquires real estate at a

Required: Determine amount to be reported as the cost of the

Driveways, parking lots, fences, landscaping, and

Illustration: Assume A Company purchases factory machinery

Exercise: Assume that A company purchases a delivery

Exercise: Assume that A company purchases a delivery truck at

Depreciation is the process of allocating the cost of

Process of cost allocation, not asset valuation.

Factors in Computing Depreciation

Cost Useful Life Residual Value

(1) Straight-line method.

Illustration: Barb’s Florists purchased a small delivery truck on

Required: Compute depreciation using the following.

Depreciable Annual Accum. Book

2011 Depreciation expense 2,400

of Cost / Depreciation Accumulated Book

2011 15,000 Br 0.12 Br 1,800 Br 1,800 Br 11,200

2011 Depreciation expense 1,800

Beginning Balance Deprec. Accum. Book

2011 13,000 40% Br 5,200 Br 5,200 Br 7,800

2011 Depreciation expense 5,200

Slide * Computation of Br674 (Br1,685 x 40%) is adjusted to Br685.

The following four slides are included to illustrate the

Illustration: A Plus Company purchased a small delivery truck

Required: Compute depreciation using the following.

2011 Depreciation expense 600

Illustration: (Units-of-Activity Method) Illustration 9-12

Hours Cost / Annual Accum. Book

2011 Depreciation expense 1,800

2011 Depreciation expense 1,300

Revising Periodic Depreciation

Illustration: Assume that A Plus Co. decides on January 1,

Book value, 1/1/14 Br5,800 First,

Journal entry for 2014

Depreciation expense 1,600

Slide SO 5 Distinguish between revenue and capital expenditures,

Record depreciation up to the date of disposal.

Retirement of Plant Assets

Accumulated depreciation 32,000

Accumulated depreciation 14,000

Companies report a loss on disposal in the “Other income and

Sale of Plant Assets

Depreciation expense 8,000

Illustration: Wright records the sale as follows.

July 1 Cash 16,000

Loss on Disposal Illustration 9-21

July 1 Cash 9,000

Office equipment 60,000

Ordinarily, companies record a gain or loss on the

The rationale for recognizing a gain or loss is that

An exchange has commercial substance if the

Cost of old trucks Br64,000

Cost of old equipment Br40,000

Natural resources consist of standing timber and

Depletion is to natural resources as depreciation is to plant