Plant Assets: Plant assets refer to the fixed assets, having a useful life of more than a year that is acquired by a company to be used in its business activities, for generating revenue.
To explain: Historical cost principle applies to plant assets
Explanation of Solution
According to the historical cost principle, all the plant assets should be recorded at their historical or original cost in the books of accounts. The historical cost refers to the amount paid for purchasing the fixed assets. It includes the cost price of the asset plus any taxes, purchase commission or brokerage, or any amount paid to make the asset ready for operation.
Thus, when a plant asset is recorded in the books of accounts, it should be recorded at historical cost that is, at its total cost which includes all the expenditures spent to acquire the asset and make it ready to serve the purpose.
Thus, the plant assets applies to historical cost principle that requires all the plant assets to be recorded at its original cost.
Want to see more full solutions like this?
Chapter 9 Solutions
FINANCIAL ACCOUNTING:TOOLS FOR BUSINESS
- Explain the reasons for the impairment and the justification for treating the write-down as a permanent decline in value of the asset(s). A difference between the book value of plant assets and the fair value generally exists.Explain the role technology and obsolescence have in the impairment of assets.arrow_forwardWhich statement concerning depreciation is false? a.The only property that has a determinable life is depreciable. B.Land is not depreciable. C.Intangible assets' capital costs are recovered through amortization, much like depreciation. D.Personal property converted to business use is not depreciable since it was once used for personal purposes.arrow_forwardWhat characteristics of a plant asset make it different from other assets?arrow_forward
- Which of the following items shall not be capitalized into the cost of property, plant, and equipment? Cost of excess materials resulting from a purchasing error. Cost of testing whether the asset works correctly. Initial delivery and handling costs. Cost of preparing the site for installation.arrow_forwardAre litigation costs to defend an intangible asset capitalized or expensed? Explain your answer.arrow_forwardFrom an economic point of view, which activity is regarded as an undertaking to prevent a loss in value, rather than an activity undertaken to add value to the property? maintenance O modernization O rehabilitation O remodelingarrow_forward
- Why do we need to depreciate our property, plant, and equipment? (Discuss also the treatment of depreciation expense in the financial statements.) Please don't copy paste answers you will provide. Make it original thank you.arrow_forwardDepreciation, depletion, and amortization deductions are not available for some types of property; thus, the cost of the property is not recoverable at all. Please also include three examples of the types of assets that are not subject to "cost recovery" as part of your response to this question.arrow_forwardDescribe the Costs of Defending Intangible Rights.arrow_forward
- Normally, depreciation should not be recognized on plant assets during their construction period. What is the exception? Select the correct response: When the length of the construction period is unduly prolonged. When evidence indicates that operations will not produce sufficient revenue to cover all costs including deprecation. When partial use of the asset can be identified with an income during their construction period and corresponding costs can be ascertained. When the carrying amount of the property cannot be realized through sale.arrow_forwardWhy is the cost of certain kinds of property not recoverable at all by way of depreciation, depletion, or amortization deductions? In addition to answering that question, give three examples of the kinds of assets that are not subject to “cost recovery”.arrow_forward
- Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENTCentury 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:Cengage