Resources, and Intangibles
How does a business measure the cost of a plant asset?
Plant assets are longlived, tangible assets used in the operation of a business.
Recorded at historical costthe amount paid for the asset. This includes the purchase price plus taxes, purchase commissions, and all other amounts paid to ready the asset for its intended use.
A lump sum purchase involves paying a single price for multiple assets. The cost of each asset purchased must be identified based on the relativemarketvalue method.
Two additional types of expenditures are often incurred on plant assets:
Capital Expenditures debited to an asset account because it increases the asset's capacity or efficiency or extends the asset's useful life.
Revenue Expenditures debited to Repairs and Maintenance Expence because they are incurred to maintain the asset in working order.
How are natural resources accounted for?
Natural resources: assets that come from the earth and are consumed.
Examples: Iron ore, oil, natural gas, diamonds, coal, and timber.
expensed through depletion.
Depletion: the process by which businesses spread the allocation of a natural resource‘s cost over its usage.
= Depletion per unit x Number of units extracted
Depletion per unit
= (Cost – Residual value)/Estimated total units
Example (Oil well):
Depletion entry for the year:
Accumulated Depletion Contra asset account
How are intangible assets accounted for?
Intangible Assets: assets with no physical form that are valuable because of the special rights it carries (from patents, copyrights, trademarks, and other creative works.
The purchase of intangible assets are recorded at cost and expensed through amortization.
Amortization: the allocation of the cost of an intangible asset over ist useful life.