Assuming the same facts as in except that fair value information for the assets exchanged is not determinable. Prepare the general journal entry to record this transaction. E On April 1, 2012, Pavlova Company received a condemnation award of $410,000 cash as compensation for the forced sale of the company’s land and building, which stood in the path of a new state highway. The land and building cost $60,000 and $280,000, respectively, when they were acquired. At April 1, 2012, the accumulated depreciation relating to the building amounted to $160,000. On August 1, 2012, Pavlova purchased a piece of replacement property for cash. The new land cost $90,000, and the new building cost $380,000.
This loss was reported on the income statement thereby reducing net income. Actually, cash of $900 was received from the sale of the equipment and it is reported in its entirety in the investing activities section of the SCF. Be able to record the removal of a depreciable asset from the accounts.Know how to record the sale of a depreciable asset, including situations involving either a gain or loss. While the journal entry alone might be sufficient to demonstrate the loss calculation, one might Dispositions Of Plant Assets also consider that an asset with a $25,000 net book value is being sold for $10,000. The asset has to be completely removed from the balance sheet so that the cost of the asset is reduced to zero and so is the accumulated depreciation. Life or residual value of property, plant, and equipment and intangible assets. Further, registrants must consider the impact the revised financial statements may have on other SEC requirements (e.g., SEC Regulation S-X, Rules 3-05, 3-09, 4-08, and 3-10).
July Transactions and Financial Statements
Depreciable cost represents the total amount subject to depreciation and is calculated as the cost of the asset less its salvage value. Each of these depreciation methods is acceptable under generally accepted accounting principles. Cost—Plant assets are recorded at cost, in accordance with the cost principle.
This expense reduced net income but did not reduce the Cash account. Therefore, the $20 of depreciation expense is a positive adjustment to the $100 of net income. There was no change in short-term loans payable, long-term liabilities, or owner’s equity during July (other than the $180 loss on sale of equipment). Certain types of assets, particularly vehicles and large pieces of equipment, are frequently exchanged for other tangible assets. For example, an old vehicle and a negotiated amount of cash may be exchanged for a new vehicle.
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Other terms commonly used are plant assets and fixed assets. Property, plant, and equipment include land, building structures , and equipment . The major characteristics of property, plant, and equipment are as follows. Investments in long-lived assets, such as property, plant, and equipment, are important elements in many companies’ balance sheets.
Different ways they may do this include selling the asset, trading it in on a new fixed asset, junking it, or doing involuntary conversion. Junking an asset means it’s totally worn out and thrown away. Involuntary conversion can occur when the asset is destroyed in a fire or stolen. To account for disposal, remove the asset and its related accumulated depreciation from the books. An equal amount of depreciation is assigned to each year of asset use, Depreciable cost is divided by useful life in years to determine the annual depreciation expense. BE10-15 Use the information presented for Ottawa Corporation in BE10-14, but assume the machinery is sold for $5,200 instead of $10,500.
Disposition of Property, Plant, and Equipment
Machinery 15,000To record the retirement of a fully depreciated machine.Occasionally, a company continues to use a plant asset after it has been fully depreciated. In such a case, the firm should not remove the asset’s cost and accumulated depreciation from the accounts until the asset is sold, traded, or retired from service. Of course, the company cannot record more depreciation on a fully depreciated asset because total depreciation expense taken on an asset may not exceed its cost. If the company exchanges its used truck for a forklift, receives a $6,000 trade‐in allowance, and pays $20,000 for the forklift, the loss on exchange is still $4,000. Lump-Sum Purchases A special problem of valuing fixed assets arises when a company purchases a group of plant assets at a single lump-sum price. When this common situation occurs, the company allocates the total cost among the various assets on the basis of their relative fair values.
How do you dispose of fully depreciated assets?
Disposal of a Fully Depreciated Asset
When an asset reaches the end of its useful life and is fully depreciated, asset disposal occurs by means of a single entry in the general journal. The accumulated depreciation account is debited, and the relevant asset account is credited.
Intangible assets are typically amortized on a straight-line basis. If an intangible has a limited life, its cost should be allocated over its useful life using a process similar to depreciation. It tells how effective a company is in turning its sales into income—that is, how much income is provided by each dollar of sales. This ratio is calculated by dividing net income by net sales. The return on assets ratio indicates the amount of net income generated by each dollar invested in assets.
how Long-lived Assets are Reported on the Balance Sheet
How do statement users determine the impact of interest capitalization on a company’s bottom line? Companies with material interest capitalization must disclose the amounts of capitalized interest relative to total interest costs. For example, Anadarko Petroleum Corporation capitalized nearly 30 percent of its total interest costs in a recent year and provided the following footnote related to capitalized interest. Financial Footnotes Total interest costs incurred during the year were $82,415,000. Capitalized interest is included as part of the cost of oil and gas properties.
Its cost should be amortized over its 20-year life or useful life whichever is shorter. Nder a new accounting standard, intangibles are now categorized as having either a limited life or an indefinite life.
To overcome this problem, each gain is deducted from the net income and each loss is added to the net income in the operating activities section of the SCF. https://simple-accounting.org/ To illustrate, assume a company sells one of its delivery trucks for $3,000. The truck is in the accounting records at its original cost of $20,000.
On January 2, 2012, Durler exchanged this equipment plus $12,000 in cash for newer equipment. The equipment was delivered by the suppliers, installed by Magilke, and placed into operation. Some of it was purchased for cash with discounts available for prompt payment. Some of it was purchased under long-term payment plans for which the interest charges approximated prevailing rates. What costs should Magilke capitalize for the new equipment purchased this year? In some cases, companies promise to give some type of asset in the future.
Combining the $20,000 and the $18,000 results in a book value of $2,000. If the truck sells for $15,000 when its net book value is $10,000, a gain of $5,000 occurs. The sale is recorded by debiting accumulated depreciation‐vehicles for $80,000, debiting cash for $15,000, crediting vehicles for $90,000, and crediting gain on sale of vehicles for $5,000. If an involuntary conversion takes place, the company has to record the difference between insurance proceeds and the asset’s net book value as gain or loss on disposal of the asset. Suppose that, instead of selling the equipment, a thief breaks into the business during the night and steals it.