Property, Plant, and Equipment

This chapter introduces how organizations categorize and account for fixed assets. Assets are recorded at cost, not necessarily market value. It also covers the various methods of depreciation, why each method is used, and the "rate of return" expected by an organization when they purchase an asset. You should be able to explain fair market value, acquisition costs, historical costs, and which costs are capitalized. This chapter addresses the reality that all assets with the exception of land have a useful life. A business should expect some wear and tear on assets as a direct result of using them to support business activity. Depreciation is an allocation process that ensures the useful life of an asset is properly identified from accounting and company valuation.

Learning objectives

After studying this chapter, you should be able to:

  • List the characteristics of plant assets and identify the costs of acquiring plant assets.
  • List the four major factors affecting depreciation expense.
  • Describe the various methods of calculating depreciation expense.
  • Distinguish between capital and revenue expenditures for plant assets.
  • Describe the subsidiary records used to control plant assets.
  • Analyze and use the financial results - rate of return on operating assets.

Source: Textbook Equity,
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