Often asked: rationale Why Plant Assets Are Not Reported At Liquidation Value?

The cost principle requires that plant assets be reported at amounts that are not greater than cost. Since it is assumed that the company is not liquidating, the liquidation value of the plant assets is not relevant.

Are plant assets recorded at market value?

A plant asset is an asset with a useful life of more than one year that is used in producing revenues in a business’s operations. Plant assets are also known as fixed assets. Plant assets are recorded at their cost and depreciation expense is recorded during their useful lives.

Why are plant assets reported at historical cost?

Plant assets are recorded at histroical cost. What does the historical cost of a plant asset include? The historical cost of a plant asset includes the purchase price plus taxes, purchase commissions, and all other amounts paid to ready the asset for its intended use. You just studied 20 terms!

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What is requires recognition of expenses in the same period as related revenues?

Matching principle is the accounting principle that requires that the expenses incurred during a period be recorded in the same period in which the related revenues are earned. This principle recognizes that businesses must incur expenses to earn revenues.

What is the journal entry for revaluation of assets?

A revaluation that increases or decreases an asset ‘s value can be accounted for with a journal entry that will debit or credit the asset account. An increase in the asset’s value should not be reported on the income statement; instead an equity account is credited and called a “Revaluation Surplus”.

Is depreciation a current asset?

Depreciation expense is not a current asset; it is reported on the income statement along with other normal business expenses. Accumulated depreciation is listed on the balance sheet.

What is equivalent to the book value of an asset?

The book value of an asset is equal to the asset’s cost less accumulated depreciation.

How are plant assets reported?

Plant assets are reported within the property, plant, and equipment line item on the reporting entity’s balance sheet, where it is grouped within the long-term assets section. The presentation may pair the line item with accumulated depreciation, which offsets the reported amount of the asset.

How do you calculate net book value of an asset?

The formula for calculating NBV is as follows:

  1. Net Book Value = Original Asset Cost – Accumulated Depreciation.
  2. Accumulated Depreciation = $15,000 x 4 years = $60,000.
  3. Net Book Value = $200,000 – $60,000 = $140,000.
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How are long lived assets reported on the balance sheet?

Property, plant, and equipment are tangible, long-lived assets used in the operations of the business. Land, natural resources, buildings, furniture, equipment, and machinery are included in this category. They are listed under the asset portion of the balance sheet.

What is the advantage of using historical cost on the balance sheet for property plant and equipment?

The main advantage of using historical cost on the balance sheet for property, plant and equipment is that historical cost can be verified. Generally, the cost at the time of purchase is documented with contracts, invoices, payments, transfer taxes, and so on.

Which depreciation method is the best method for a company to use Why?

The Straight-Line Method This method is also the simplest way to calculate depreciation. It results in fewer errors, is the most consistent method, and transitions well from company-prepared statements to tax returns.

What principle is minimal costs incurred should be recorded as an expense?

The expense recognition principle states that expenses should be recognized in the same period as the revenues to which they relate. If this were not the case, expenses would likely be recognized as incurred, which might predate or follow the period in which the related amount of revenue is recognized.

When should an expense be recognized?

The accounting method the business uses determines when an expense is recognized. If the business uses cash basis accounting, an expense is recognized when the business pays for a good or service. Under the accrual system, an expense is recognized once it is incurred.

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How revenue and expenses are recognized?

The cash method of accounting recognizes revenue and expenses when cash is exchanged. For a seller using the cash method, revenue on the sale is not recognized until payment is collected. Just like revenues, expenses are recognized and recorded when cash is paid.

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