IFA Chapter 10

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 acquire land and ready it for use . Costs typically include: (1) purchase price ; (2) closing costs , such as title to the land , attorney's fees , and recording fees ; (3) costs of grading, filling, draining, and clearing; (4) assumption of any liens, mortgages, or encumbrances on the property; and (5) 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. u Land acquired and held for speculation is classified as an investment . u Land held by a real estate concern for resale should be classified as inventory . Cost of Buildings Includes all expenditures related directly to acquisition or construction . Costs include: u materials, labor, and overhead costs incurred during construction and u professional fees and building permits. Cost of Equipment Include all expenditures incurred in acquiring the equipment and preparing it for use . Costs include: u purchase price, u freight and handling charges, u insurance on the equipment while in transit, u cost of special foundations if required, u assembling and installation costs, and u costs of conducting trial runs. Self-Constructed Assets Costs include: 1) Materials and direct labor 2) Overhead can be handled in two ways: 1) Assign no fixed overhead. 2) 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 construction.