Determination of Cost Carr Company must determine whether the following items are included in property, plant, and equipment:
Required:
1.
Identify the items that are included in the cost of property, plant, and equipment and state the items that are excluded from the cost of property, plant and equipment.
Property, Plant, and Equipment:
Property, Plant, and Equipment refers to the fixed assets, having a useful life of more than a year that is acquired by a company to be used in its business activities, for generating revenue.
Determination of cost:
The procurement or acquisition cost of “property, plant and equipment” comprises of all costs that are required to “obtain the benefits to be derived from the asset”.
Items that are included in the cost of property, plant and equipment are as follows:
a. Contract price |
c. Freight costs |
f. Installation costs |
g. Testing costs |
h. Cost of major overhaul of equipment |
i. Costs of grading land prior to construction |
j. Tax assessment for street improvements |
k. Delinquent property taxes on acquired property |
m. Cost of insurance during construction (could be expensed) |
n. Avoidable interest costs during construction (not imputed interest) |
o. Landscaping costs |
q. Cost of tearing down a building on newly acquired land |
r... |
2.
Explain the general rule that must be followed in ascertaining the costs that are included in property, plant and equipment.
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