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Chapter 8
Accounting for Plant Assets
 Plant asset record – a sheet that we
create when we buy the plant asset and it
helps keep track of the depreciation per
year, accumulated depreciation, and the
book value of the asset
PLANT ASSET RECORD No. ________________
General Ledger Acct. No.
____________
Description: Display Case
General Ledger Acct. Store
Equipment
Date Bought: Jan. 2nd 2004
Serial Number:8765309
Original Cost: $1,250
Estimated Useful Life 5 years
Estimated Salvage Value: $250
Disposed of:
Discarded
Sold
Date________________________________
Year
Annual
Depreciation
Expense
Accumulated
Depreciation
Depreciation Method: Straight Line
Method
Traded
Disposal
Amount:______________________________
Ending Book
Value
More Definitions
 Real Property – Land and anything
attached to it (that is why we call it real
estate)
 Personal Property – All property not
classified as real property
 Assessed Value – is the value of an
asset determined by tax authorities for
the purpose of calculating taxes
Paid cash for property tax
Feb 1. Paid cash for property tax, $3250. Check No. 122
Cash Payments
General
Date
Account Title
Ch.
No
1-Feb
Property Tax Expense
122
Post
Ref
Debit
3250
Credit
Account
s
Payable
Debit
Purch Disc Cr
Golf
Tennis
Cash
Credit
3250
Section 8-2
Depreciation
 Original Cost
 The value the plant asset was to us when we
purchased it.
 Estimated Salvage Value
 What we believe the asset will be worth when we
can not depreciate it any more.
 Estimated Useful Life
 How many years we are allowed to depreciate the
asset (determined by the government)
Straight-line method of
depreciation
 The asset decreases by the same value
each year.
Original cost
-Estimated Salvage Value
Estimated Total Depreciation
Divided by useful years
Annual Depreciation expense
Original cost
$2000
-Estimated Salvage Value
175
Estimated Total Depreciation
$1825
Divided by useful years
5
Annual Depreciation expense $365 per year
Our plant asset record would look
something like this if we bought the
asset at the beginning of the year.
year
Annual
Depreciation
Accumulated
Depreciation
Ending book
Value
1
55
55
220
2
55
110
165
3
55
165
110
4
55
220
55
5
55
275
0
Original Cost
275
Now remember at the end of each
year we have to adjust or bring our
accounts up to date.
General Journal
Doc
No.
Date
Dec
Post
Ref
Debit
Credit
Account Title
31 Depr. Exp - Office Equipment
Accum Depr.- Office Equipment
11571
11571
Partial year depreciation
Annual Depreciation
365
Divided by months in year
12
Monthly Depreciation
30.42 per month
X number of months used
5
Partial Year Depreciation
152.10
8-3 Disposing of a plant
asset
 Three ways in which we can dispose of a
plant asset
 Is fully depreciated and has no value to us
 We sell it for more than book value
 We sell it for less than book value
How do we find out how
much it is for us?
year
Annual
Depreciation
Accumulated
Depreciation
Ending book
Value
1
55
55
220
2
55
110
165
3
55
165
110
4
55
220
55
5
55
275
0
Original Cost
275
What are things we need to
do in order to write off the
asset.
1. We need to record any depreciation that has
happened up to the point when we sell
something.
2. We need to write off the original cost of the
asset.
3. We need to write off the accumulated
depreciation on the asset
4. We need to record any cash or asset received
from the transaction
June 30, 2006 Discarded office table:
original cost $200; total accumulated
depreciation through December 31,
2005, $140; additional depreciation to be
recorded through June 30, $20.00
Memorandum 92
What is important about
this transaction
June 30, 2006 Discarded office table:
original cost $200; total accumulated
depreciation through December 31,
2005, $140; additional depreciation to be
recorded through June 30, $20.00
Memorandum 92
Lets go back to the slide where it tells us what we need to record……
What are things we need to
do in order to write off the
asset.
1. We need to record any depreciation that has
happened up to the point when we sell
something.
2. We need to write off the original cost of the
asset.
3. We need to write off the accumulated
depreciation on the asset
4. We need to record any cash or asset received
from the transaction
General Journal
Doc
No.
Date
Dec
Post
Ref
Debit
Credit
Account Title
31 Depr. Exp - Office Equipment
Accum Depr.- Office
Equipment
20
20
What is important about
this transaction
June 30, 2006 Discarded office table:
original cost $200; total accumulated
depreciation through December 31,
2005, $140; additional depreciation to be
recorded through June 30, $20.00
Memorandum 92
Lets go back to the slide where it tells us what we need to record……
General Journal
Date
Dec
Account Title
31 Depr. Exp - Office Equipment
Doc
No.
Post
Ref
Debit
20
20
Accum Depr.- Office Equipment
Dec
31 Accum Depr.- Office Equipment
Loss on Plant Asset
Office Equipment
Credit
160
40
200
June 30, 2006 Discarded office table: original cost $200;
total accumulated depreciation through December 31,
2005, $140; additional depreciation to be recorded through
June 30, $20.00 Memorandum 92
Selling a plant asset
January 4, 2006, Received Cash from the sale of a fax
machine, $185: original cost, $600 total accumulated
depreciation through December of 2005 $400 Receipt No.
60
Cash Receipts Journal
Because of the date there
is no additional accumulated
depreciation so there is no need for an adjustment.
Date
4-Jan
Account Title
Accum. Depr- Office Equip
Loss on Plant Asset
Office Equip
Doc
No
R60
Post
Ref
General
Debit
Credit
400
A /R
Credit
Sales Tax
Payable
Debit
Credit
Sales Credit
Golf
Tennis
Sales Discount
Debit
Golf
Tennis
Cash
Credit
185
15
600
June 27, Paid cash , $850 plus old counter for new store
counter: original cost of old counter $1000; total accumulated
depreciation through June 27 $765 Memo 130 and Check No.
154
Trading a Plant Asset
1. Remove the original cost of the old plant asset and
its related accumulated depreciation
2. Recognizes the cash paid
3. Record the new plant asset at it original cost
Cash Receipts Journal
Sales Tax
Payable
General
Date
4-Jan
Account Title
Store Equipment
Accum. Depr-Store Equip
Store Equipment
Doc
No
R60
Post
Ref
Debit
Credit
1085
A/R
Credit
Debit
Credit
Sales Credit
Golf
Tennis
Sales Discount
Debit
Golf
Tennis
Cash
Credit
850
765
1000
January 2, 2006 Fidelity Company sold land with a building for
$97,000 cash; original cost of land $25,000 original cost of
building $150,000; total accumulated depreciation on building
through December 31, 2005 $85,000 Receipt No. 105
Selling Land and Buildings
Cash Receipts Journal
Sales Tax
Payable
General
Date
2-Jan
Account Title
Accum Depr - Building
land
Building
Gain on Plant Asset
Doc
No
R105
Post
Ref
Debit
Credit
85000
A/R
Credit
Debit
Credit
Sales Credit
Golf
Tennis
Sales Discount
Debit
Golf
Tennis
Cash
Credit
97000
25000
150000
7000
8-4 Other methods of
Calculating
Depreciation
Declining – Balance
method of depreciation
Total Dep / Est. Useful years X 2 = Declining Balance Rate
100% / 5 = 20% x 2 = 40%
Year
Beginning Book
Value
DecliningBalance
Rate
Annual Depreciation
Ending Book
Value
1
2000
40%
800
1200
2
1200
40%
480
720
3
720
40%
288
432
4
432
40%
172.8
259.2
5
259.2
40%
84.2
175
We can not go below what the estimated salvage value is…..
Sum of the years digits
We add up all of the years and use it as a fraction of how much
should be depreciated over that year.
1+2+3+4+5= 15
Year
Beginning
Book
Value
Fraction
1
2000
5/15
1825
608.33
1391.67
2
1391.67
4/15
1825
486.67
905
3
905
3/15
1825
365
540
4
540
2/15
1825
243.33
296.67
5
296.67
1/15
1825
121.67
175
Total
Depreciation
Annual
Depreciation
1825
Ending Book
Value
Production-Unit Method of
Depreciation
This method is used when an asset like a truck is used a lot.
Orig cost
Est. Salvage Value
Total Depreciation
Estimated Useful life (divide)
Depreciation Rate
18,200
-2000
16,200
90,000 Miles
.18 per mile
Year
Beg Book Value
Miles Driven
Annual Dep
Ending Book
Value
1
18,200
9000
1620
16,580
2
16,580
23000
4140
12,440
3
12,440
25000
4500
7,940
4
7,940
22000
3960
3,980
5
3,980
8000
1440
2,540
M.A.C.R.S
Modified Accelerated Cost
Recovery System
Year
Depreciation Rate
1
A depreciation
method20%
required
by the IRS 32%
2
to be used
for
3
19.20%
income tax
4
11.52%
calculation purposes
5
5.76%
for most
plant assets
in service after 1986100%
Rates are given by the IRS
Annual Depreciation
400
640
384
230.4
115.2
Original Cost
100,000
Estimated Salvage Value
-12,250
Estimated Total Value of Coal
87,750
Depletion
decrease in coal
the value
asset
Estimated
TonsThe
of Recoverable
divideof a plant
50,000
because
theTon
removal
of a natural resource
Depletion
Rateofper
of Coal
$1.755
Last Slide!!!!!!!!!!
Tons
Recovered
Annual
Depletion
Ending
Book
Value
Year
Beg Book
Value
1
100000
6000
10530
89470
2
89470
12000
21060
68410
3
68410
13000
22815
45595
4
45595
9000
15795
29800
5
29800
6000
10530
19270