Question

51. Plant assets are recorded at historical cost. What does the historical cost of a

plant asset include?

52. Define book value, residual value, and market value with regard to plant

assets.

53. What does the word “capitalize” mean?

54. What is depreciation and how is it computed in financial accounting?

55. How do you determine the annual depreciation expense using straight-line

method?

56. What financial statement is a plant asset reported on and how?

57. What is a natural resource? What is depletion?

58. What is an intangible asset? Name three. What is amortization?

Answer 1

Question 51

Answer historical cost of plant includes

1. Cost incurred at the time of orignal purchase of asset.

2. Cost recorded originally at the time of purchase of asset

For a plant asset means actual price paid for machinery

It's installation cost transportation cost all incurred upto the installation.

Question 52

Book value refers to the total amount a company would be worth if it liquidated its assets and repay all its liabilities. Book value of plant means the value of plant in the books if account net value after the accumulated depreciation

Residual value

In depreciation the residual value is the estimated scrap or salvage value at the end of the asset's useful life.

Plant value left if it is sold after its useful life

Market value

It refers to current value of the plant in the market if it is sold today.

Question 53

Capitalise means value which is to be added in the cost of the asset .

Which is to be shown in financials

If it improves the efficiency of asset or useful for more tgan 1 year we generally capitalise

Otherwise we expense the amount

Question 54

Depreciation is a reduction in the value of an asset over time, due in particular to wear and tear.

Computed by different methods such as straight line method , written down value method

Question 55

In straight line method

Eg cost 100 life 10 years we allocated expenses over the life of asset

Each year for 10 years depreciation of rs 10.

If any residual value we deduct the amount from cost.

Question 56

Property, plant and equipment is the long-term asset or noncurrent asset section of the balance sheet that reports the tangible, long-lived assets that are used in the company's operations. These assets are commonly referred to as the company's fixed assets or plant assets.

Question 57

Natural resources

materials or substances occurring in nature which can be exploited for economic gain

Depletion

Depletion occurs when the renewable and non-renewable natural resources become scarce because they are consumed faster than they can recover. The term resource depletion is commonly associated with water usage, fossil fuel consumption, trees and fishing.

Question 58

An intangible asset is an asset that lacks physical substance; in contrast to physical assets, such as machinery and buildings .assets which cannot be seen and touched.

Eg patent , copyright , goodwill

Amortization

Amortization of intangibles is the process of expensing the cost of an intangible asset over the projected life of the asset.