Disposal of Property, Plant or Equipment Definition and Explanation
Assets of a durable nature used in the regular operations of a business. How do you determine when Dispositions Of Plant Assets and why to dispose of plant assets? What are the options for accounting for these dispositions?
Even those who favor fair value measurement for inventory and financial instruments often take the position that property, plant, and equipment should not be revalued. The major concern is the difficulty of developing a reliable fair value for these types of assets.
Historical cost measures the cash or cash equivalent price of obtaining the asset and bringing it to the location and condition necessary for its intended use. For example, many companies consider the purchase price, freight costs, sales taxes, and installation costs of a productive asset as part of the asset’s cost. It then allocates these costs to future periods through depreciation.
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The units-of-activity method is suited to factory machinery and such items as delivery equipment and airplanes. Salvage value—an estimate of the https://simple-accounting.org/ asset’s value at the end of its useful life. Useful life—an estimate of the expected productive life, also called service life, of the asset.
SIC-14 — Property, Plant and Equipment – Compensation for the Impairment or Loss of Items
However, the company would assign to the cost of the constructed asset variable overhead costs that increase as a result of the construction. Determining the cost of such machinery and other fixed assets can be a problem. Without a purchase price or contract price, the company must allocate costs and expenses to arrive at the cost of the self-constructed asset. Materials and direct labor used in construction pose no problem. A company can trace these costs directly to work and material orders related to the fixed assets constructed. Disposition of Plant Assets Sale of Plant Assets Example Sim City Corporation owns machinery that cost $20,000 when purchased on January 1, 2004.