IFA Chapter 10
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment
(PP&E) are assets of a durable nature.
Cost of Land
Includes all expenditures to
ready it for use
. Costs typically include:
, such as
title to the land
costs of grading, filling, draining, and clearing;
assumption of any liens, mortgages, or encumbrances on the property; and
additional land improvements that have an indefinite life.
Improvements with limited lives, such as private driveways, walks, fences, and parking lots, are
recorded as Land Improvements and depreciated.
Land acquired and held for speculation is classified as an
Land held by a real estate concern for resale should be classified as
Cost of Buildings
Includes all expenditures related directly to
acquisition or construction
materials, labor, and overhead costs incurred during construction and
professional fees and building permits.
Cost of Equipment
Include all expenditures incurred in acquiring the
equipment and preparing it for use
freight and handling charges,
insurance on the equipment while in transit,
cost of special foundations if required,
assembling and installation costs, and
costs of conducting trial runs.
Materials and direct labor
Overhead can be handled in two ways:
Assign no fixed overhead.
Assign a portion of all overhead to the construction process.
Companies use the second method extensively.
Interest Costs During Construction
Three approaches have been suggested to account for the interest incurred in financing the