What is a plant asset?

A resource with physical substance that is used in operations, is expected to last more than one year, and is not intended for resale. Also called fixed assets or property, plant and equipment.

What does the cost of a plant asset include?

Every expenditure that is necessary and reasonable to get the asset to the business and get it ready for its intended use — not just the purchase price. Those costs are capitalized (added to the asset account).

Capital expenditure vs. revenue expenditure?

A capital expenditure is added to a plant asset account (capitalized) and released through depreciation. A revenue expenditure is expensed immediately on the income statement — e.g., ordinary repairs, motor-vehicle licenses, insurance after purchase.

What goes into the cost of land?

Purchase price, closing costs (title search, attorney fees), real-estate commissions, accrued taxes assumed, and the cost of clearing, grading and demolishing old structures — LESS any proceeds from salvaged materials.

No. Land has an unlimited useful life. Everything else — land improvements, buildings and equipment — is depreciated.

What are land improvements?

Structural additions to land with limited lives — paving, fencing, lighting, sprinkler systems. Recorded in their own account and depreciated over their useful lives.

What is depreciation?

The process of allocating the cost of a plant asset to expense over its useful life in a rational and systematic way. It is cost allocation, NOT a measure of the asset's value.

The three ingredients of every depreciation method?

Cost (a measured fact), useful life (an estimate) and salvage value (an estimate). Only cost minus salvage — the depreciable cost — is ever expensed.

Cost minus accumulated depreciation. It is what is left unexpensed on the books — never a price tag for what the asset is worth.

Straight-line depreciation formula?

Annual depreciation = (Cost − Salvage value) ÷ Useful life in years. Equal slices every year.

Units-of-activity formula?

Depreciable cost per unit = (Cost − Salvage) ÷ Total estimated units. Annual depreciation = cost per unit × units used that year. Expense follows the work.

Double-declining-balance formula?

Rate = 2 × the straight-line rate. Annual depreciation = Book value at the beginning of the year × the rate. Salvage is ignored until the end — but book value never drops below salvage.

Sum-of-the-years'-digits method?

Denominator = years of life added together (e.g., 4+3+2+1 = 10). Each year's fraction = years remaining ÷ denominator, applied to depreciable cost (cost − salvage).

What does 'accelerated depreciation' mean?

Higher depreciation in the early years and lower amounts later. Double-declining-balance and sum-of-the-years'-digits are accelerated; straight-line and units-of-activity are not. Total depreciation over the life is the same under every method.

How is a change in a depreciation estimate handled?

Forward only (prospectively). Prior years are never restated. New annual depreciation = (Book value at the change − revised salvage) ÷ remaining revised useful life.

What is an impairment?

A permanent decline in the asset's ability to generate cash. If book value exceeds the undiscounted future cash flows, write the asset down to fair value: Dr Loss on Impairment / Cr Accumulated Depreciation. Not reversed under U.S. GAAP.

The two steps for every disposal of a plant asset?

Step 1 — bring depreciation up to the date of disposal. Step 2 — compare what you receive with book value: more = gain, less = loss, equal = neither. Then remove both the asset's cost and its accumulated depreciation.

How is a retirement (scrapping) of a plant asset recorded?

Dr Accumulated Depreciation for the total taken, Dr Loss on Disposal for any remaining book value, Cr the asset for its cost. A retirement can never produce a gain because nothing is received.

The allocation of the cost of a natural resource (mine, quarry, oil field, timber) to the units extracted. Rate = cost ÷ total estimated units; entry: Dr Depletion Expense / Cr Accumulated Depletion.

What is an intangible asset, and how is it amortized?

A right or privilege with no physical substance — patents, copyrights, trademarks, franchises, goodwill. Limited-life intangibles are amortized straight-line over the SHORTER of legal life and useful life; indefinite-life intangibles (goodwill, trademarks) are not amortized but tested for impairment.

How are research and development costs treated?

Expensed as incurred, however promising the project — until a benefit is certain, accounting will not record an asset.

What is goodwill and how is it measured?

Goodwill = price paid for a business − fair value of the identifiable net assets acquired. It is recorded only when a whole business is purchased, and it is never amortized.

What goes into the cost of a building you BUY?

Purchase price, closing costs (attorney's fees, title insurance) and the broker's commission — plus any remodeling or repairs needed to get it ready for its intended use.

What goes into the cost of a building you BUILD?

The contract price plus architect's fees, building permits, excavation costs, and interest on money borrowed to finance the construction (only during the construction period).

What goes into the cost of equipment?

Purchase price, sales taxes, freight charges, insurance while in transit, and the cost of assembling, installing and testing. NOT licenses, insurance after the asset is in use, or repairs — those are expenses.

Ordinary repairs vs. additions and improvements?

Ordinary repairs keep the asset running — a revenue expenditure, debit Repairs and Maintenance Expense. Additions and improvements increase capacity, efficiency or life — a capital expenditure, debit the asset.

100% ÷ useful life in years. A 5-year life is 20% a year; an 8-year life is 12.5%. Double it and you have the double-declining-balance rate.

Partial-year depreciation?

When an asset is bought during the year, take the annual amount × months owned ÷ 12. Bought April 1 = 9/12 of a year; bought October 1 = 3/12.

Depreciation schedule — what are the columns?

Year · Depreciable cost (or opening book value) · Rate · Depreciation expense · Accumulated depreciation · Book value. The last book value must equal salvage.

What if an asset is fully depreciated but still in use?

Stop depreciating — never below salvage. Keep the cost and its accumulated depreciation on the books until the asset is retired or sold.

What is the entry to SELL a plant asset at a gain?

Dr Cash (proceeds), Dr Accumulated Depreciation (total to date); Cr the asset (cost), Cr Gain on Disposal of Plant Assets (proceeds − book value).

Exchange of plant assets with commercial substance?

Record the new asset at the fair value of the asset given up plus any cash paid. Gain or loss = fair value of the old asset − its book value. Remove the old asset's cost and accumulated depreciation.

What is a natural resource?

Standing timber and underground deposits of oil, gas and minerals — assets that are physically extracted and replaceable only by an act of nature. Cost = price + costs to get the resource ready for its intended use.

Depletion when not all the extracted units are sold?

Depletion cost per unit × units extracted goes into Inventory; only the cost of the units SOLD reaches the income statement as expense. The unsold units carry their depletion cost as inventory.

Legal costs of defending a patent?

A SUCCESSFUL defence is added to the Patents account and amortized over the remaining useful life. An unsuccessful defence is expensed — the right was not protected.

The exclusive right to reproduce and sell a published or artistic work, granted for the life of the creator plus 70 years. Amortized over its useful life, which is usually much shorter.

What is a trademark or trade name?

A word, phrase, jingle or symbol that identifies a product or business. Legal protection runs 20 years and is renewable indefinitely — so it is an indefinite-life intangible: NOT amortized, tested for impairment.

What is a franchise or license?

A contractual right to sell products or use a name in a territory (e.g., a fast-food franchise, a broadcast license). Limited-life franchises are amortized over their term; annual fees under the agreement are expensed.

Net sales ÷ average total assets — how many dollars of sales each dollar invested in assets produced. Fixed asset turnover uses average fixed assets instead.

How are plant assets and intangibles presented on the balance sheet?

Property, plant and equipment: each class at cost with its accumulated depreciation deducted (contra asset); land at cost. Intangible assets are shown separately, usually net of amortization. Goodwill is listed on its own line.

Back to Courses

Accounting 2 · Chapter 10 · Free

Chapter 10 — Plant Assets, Natural Resources & Intangibles

Name: Accounting 2 · Chapter 10 — Plant Assets, Natural Resources & Intangibles
Availability: InStock

How companies record long-lived assets — what counts as cost, why depreciation methods change reported profit, what happens on disposal, and how intangibles, goodwill, and depletion work.

Quiz Generator Practice Hub

What you'll learn

Determine which expenditures belong in the cost of a plant asset
Compute depreciation under straight-line, units-of-activity, and declining-balance methods
Record the disposal of plant assets — sales, retirements, and trade-ins
Account for intangibles, goodwill amortization, and natural-resource depletion

Lecture

Full lecture (multi-part)

Part 1 — What Actually Counts as the Cost of an Asset

Part 2 — Depreciation Methods: Why the Same Truck Gives Four Profits

Part 3 — Disposal of Plant Assets: Gain, Loss, Retirement & Trade-In

Part 4 — Intangible Assets: Amortization, Goodwill and Depletion

Quick Review

Short recaps for fast review

Exam Cram — All of Chapter 10 in 10 Minutes

Practice this chapter

Test what stuck

Any chapters

Custom quiz

Build a custom quiz

Pick any chapters, choose the size, and we'll grade it — great for cumulative revision.

Build a custom quiz

Chapter downloads

Cheat card — 1 page Download

How to get the most out of this chapter

Watch the lecture above (or bookmark this page for when it goes live).
Take the Quick Quiz to test what stuck.
Work through the interactive practice exercises — check your answers and reveal the worked solution when you get stuck.
Run through the flashcards to lock in the key terms.
Sit the interactive mock exam end-to-end — no feedback until you submit.
Use the Quick Review / Exam Cram videos to lock it in before moving on.
When you're ready, move on to the Chapter 11.

Get new chapters in your inbox →

Chapter 10 — Plant Assets, Natural Resources & Intangibles

Full lecture (multi-part)

Short recaps for fast review

Test what stuck

Quick Quiz

Worked Exercises

Mock Exam

Flashcards

One-page summary

Build a custom quiz