Operational Assets - Property,
Plant, and Equipment
Chapter 10
Kieso, Weygandt, Warfield
Capital Expenditures vs Revenue Expenditures
Capital Expenditures – Cash outflows for goods and services
that will provide future economic benefit beyond the
current period.
Assets
Cash
XXXX
XXXX
Revenue Expenditures – Cash Outflows for goods and services
beneficial only to the current period
Expense
Cash
XXXX
XXXX
Operational [Tangible] Assets
1.
2.
3.
4.
5.
Acquired for use in Operations
Not held for resale
Expected lives are long-term
Must have physical substance
Used to generate revenue
** Examples include Equipment, Land,
Building
Costs to be Capitalized
General Rule
The initial cost of an operational
asset includes the purchase price and
all expenditures necessary to bring
the asset to its desired condition and
location for use.
Costs to be Capitalized ---Equipment
Net purchase price
 Taxes
 Transportation costs
 Installation costs
 Modification to building
necessary to install
equipment
 Testing and trial runs

Costs to be Capitalized ---Land








Purchase price
Real estate commissions
Attorney’s fees
Title search
Title transfer fees
Title insurance premiums
Removing old buildings
Material costs of
improvements that are
permanent in nature
Land is not
depreciable.
Costs to be Capitalized ---Land Improvements
Separate identifiable
costs of




Driveways
Parking lots
Fencing
Private roads
Costs to be Capitalized ---Buildings





Purchase price
Architectural fees
Cost of permits
Excavation costs
Construction costs
The following expenditures and receipts are related to land, land
improvements, and buildings acquired for use in a business
enterprise. Identify each expenditure as part of the cost of the
land, building, or land improvements asset account.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
Payment for construction from note proceeds - $275,000
Cost of land fill and clearing - $8,000
Delinquent real estate taxes on property assumed by purchaser - $7,000
Architect’s fee on building - $22,000
Cost of real estate purchased as a plant site - [land $200,000 and
building $50,000]
Commission fee paid to real estate agency - $9,000
Installation of fences around property – $4,000
Cost of razing and removing old building - $11,000
Proceeds from salvage of demolished building - $5,000
Cost of parking lots and driveways - $19,000
Cost of trees and shrubbery planted (permanent in nature) - $14,000
Ground excavation costs for basement of new building - $3,000
Interest paid during construction on money borrowed for construction $13,000
Answer to Question from Previous Slide
Land
Cost of fill and clearing
Delinquent taxes
Cost of Land and old Bldg
Commission to Realtor
Cost of removing old Bldg
Proceeds fr old Bldg salvage
Cost of trees & shrubs
$8,000
$7,000
250,000
$9,000
$11,000
($5,000)
$14,000
$294,000
Building
Pmt for construction
$275,000
Architect Fee
$22,000
Excavation costs
$3,000
Interest during construction $13,000
$313,000
Land Improvements
Fences
$4,000
Parking lots and driveways $19,000
$23,000