Question

Describe how the cost principle applies to plant assets and explain the concept of depreciation.

Answer 1

solution :

cost priciple :

The cost principle is one of the basic underlying guidelines in accounting. It is also known as the historical cost principle.

deprecation :

Depreciation is a method of reallocating the cost of a tangible asset over its useful life span of it being in motion. Businesses depreciate long-term assets for both accounting and tax purposes. The former affects the balance sheet of a business or entity, and the latter affects the net income that they report.

How cost principe applies plant resources

A plant resource is a long haul settled resource that is utilized to deliver or move items and administrations for the organization. These advantages are unmistakable and anticipated that would create benefits for over one year. Instances of plant resource are Land, building, gear, machinary.

The cost guideline necessitates that plant resources be recorded at expense. The cost comprises of all use important to get an advantage and make it prepared for it indended utilize. There are different expenses added to the plant resource, for example, dread, establishment costs, charges. When one buy a plant resource, the cost must be resolved before chronicle the exchange. Cost is estimated utilizing money paid for the thing in the event that it is money exchange or decide the money equelant cost for the surrendered resource.

Journal entry when purchasing an asset

Asset account Dr.

To Cash Cr.
Idea of Depreciation :

Deterioration is the assignment of expense of a plant resource for cost over its helpful life in a levelheaded and orderly way. Plant resources are deteriorated over their valuable lives utilizing the stright line or twofold declining devaluation strategy. Devaluation influence the balancesheet through aggregated deterioration, which is accounted for as a derivation from plant resource and it impacts the salary articulation throught the devaluation cost.

Journal entry for deprecation

Depreciation Expense a/c Dr.

To Accumulated depreciation a/c Cr.

If it's not too much trouble observe the beneath key focuses to be considered in deterioration

The book estimation of a plant resource may contrast essentially from its reasonable worth.

Devaluation applies just three classes of plant resource, Land enhancement, building, gear.

Land is certainly not a depreciable resource.

The income delivering capacity of a depreciable resource decays amid its valuable life on account of wear and tear.

Factors in processing devaluation are cost, helpful life, rescue esteem.