Question

Define plant assets and identify the four primary issues in accounting for them.

Answer 1

PLANT ASSETS: A plant asset is an asset with a useful life of more than one year that is used in producing revenues in a business's operations.

• Examples of plant assets include land, land improvements, buildings, machinery and equipment, office equipment, furniture, fixtures, vehicles, leasehold improvements, and construction work in progress.

• Plant assets are also referred to as fixed assets and/or property, plant and equipment.

• Plant assets are recorded at cost and depreciation is reported during their useful life (However, there is no depreciation of land, and the depreciation for construction work-in-progress begins when the asset is placed into service.)

• The cumulative amount of depreciation is reported in the contra plant asset account accumulated depreciation.

• Plant assets and the related accumulated depreciation are reported on a company's balance sheet in the non current asset section entitled property, plant and equipment.

• Accounting rules also require that the plant assets be reviewed for possible impairment losses.

The four primary issues in accounting the plant assets is as follows:

1. Computing the costs of plant assets.

2. Allocating the costs of most plant assets (less any salvage amount) against revenues for the periods they benefit.

3. Accounting for expenditures such as repairs and improvements to plant assets.

4. Recording the disposal of plant assets.