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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

Arca Salvage, Inc. purchased equipment for \(10,000. Arca recorded total depreciation of \)8,000 on the equipment. Assume that Arca exchanged the old equipment for new equipment, paying \(4,000 cash. The fair market value of the new equipment is \)5,000. Journalize Arca’s exchange of equipment. Assume this exchange has commercial substance.

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’s 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’s book value at the end of the first year for all three methods.

Recording partial-year depreciation and sale of an asset On January 2, 2017, Comfy Clothing Consignments purchased showroom fixtures for \(17,000 cash, expecting the fixtures to remain in service for five years. Comfy has depreciated the fixtures on a double-declining-balance basis, with zero residual value. On October 31, 2018, Comfy sold the fixtures for \)7,600 cash. Record both depreciation expense for 2018 and sale of the fixtures on October 31, 2018.

What is a natural resource? What is the process by which businesses spread the allocation of a natural resource’s cost over its usage?

If a business changes the estimated useful life or estimated residual value of a plant asset, what must the business do in regard to depreciation expense?
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