Property, plant, and equipment typically consist of long-lived tangible assets used to create and distribute an entity's products and services and include:
• a. Land and land improvements
• b. Buildings
• c. Machinery and equipment
• d. Furniture and fixtures.
Historical Cost Including Interest
30-1 Paragraph 835-20-05-1 states that the historical cost of acquiring an asset includes the costs necessarily incurred to bring it to the condition and location necessary for its intended use. As indicated in that paragraph, if an asset requires a period of time in which to carry out the activities necessary to bring it to that condition and location, the interest cost incurred during that period as a result of expenditures for the asset is a part of the historical cost of acquiring the asset.
30-2 See the glossary for a definition of activities necessary to bring an asset to the condition and location necessary for its intended use.
35-2 This guidance addresses the concept of depreciation accounting and the various factors to consider in selecting the related periods and methods to be used in such accounting.
35-3 Depreciation expense in financial statements for an asset shall be determined based on the asset's useful life.
35-4 The cost of a productive facility is one of the costs of the services it renders during its useful economic life. Generally accepted accounting principles (GAAP) require that this cost be spread over the expected useful life of the facility in such a way as to allocate it as equitably as possible to the periods during which services are obtained from the use of the facility. This procedure is known as depreciation accounting, a system of accounting which aims to distribute the cost or other basic value of tangible capital assets, less salvage (if any), over the estimated useful life of the unit (which may be a group of assets) in a systematic and rational manner. It is a process of allocation, not of valuation.
35-5 See paragraph 360-10-35-20 for a discussion of depreciation of a new cost basis after recognition of an impairmentloss.
35-6 See paragraph 360-10-35-43 for a discussion of cessation of depreciation on long-lived assets classified as held for sale.
Declining Balance Method
35-7 The declining-balance method is an example of one of the methods that meet the requirements of being systematic and rational. If the expected productivity or revenue-earning power of the asset is relatively greater during the earlier years of its life, or maintenance charges tend to increase during later years, the declining-balance method may provide the most satisfactory allocation of cost. That conclusion also applies to other methods, including the sum-of-the-years'-digits method, that produce substantially similar results.
Unacceptable Depreciation Methods
35-9 If the number of years specified by the Accelerated Cost Recovery System of the Internal Revenue Service (IRS) for recovery deductions for an asset does not fall within a reasonable range of the asset's useful life, the recovery deductions shall not be used as depreciation expense for financial reporting.
35-10 Annuity methods of depreciation are not acceptable for entities in general.
> > Fair Value
35-36 For long-lived assets (asset groups) that have uncertainties both in timing and amount, an expected present value technique will often be the appropriate technique with which to estimate fair value.
(dollars in millions, except share data) (Continued) Note 1—Summary of Significant Accounting Policies (Continued) The Company provides for estimated inventory losses between physical inventory counts as a percentage of net sales, using estimates based on the Company’s experience. The provision is adjusted periodically to reflect the results of the actual physical inventory counts, which generally