Test Your Knowledge on Plant Assets

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Questions and Answers

What is the definition of plant assets?

  • Long-term tangible assets used in business operations (correct)
  • Short-term assets used in business operations
  • Assets used for resale
  • Intangible assets used in business operations

Which of the following is NOT a type of plant asset?

  • Equipment
  • Inventory (correct)
  • Land improvements
  • Buildings

What is the basis for the valuation of plant assets on the balance sheet?

  • Depreciation
  • Future potential
  • Current market value
  • Historical cost (correct)

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Study Notes

Plant Assets: Definition, Characteristics, Costs, and Types

  • Plant assets are long-term tangible assets used in business operations.
  • They are also known as fixed assets, tangible assets, or property, plant, and equipment (PP&E or PPE).
  • Examples of plant assets include cars used at Enterprise Car Rental, printers used by the New York Times, and computers used at H&R Block for tax preparation.
  • Plant assets possess physical substance, are durable and long-term in nature, and are depreciated (with the exception of land).
  • Plant assets are acquired for use in operations and not for resale.
  • The valuation of plant assets on the balance sheet is based on historical cost, which includes the purchase price, freight costs, sales tax, installation costs, and commissions.
  • Historical cost also includes any related costs incurred after the acquisition of the plant asset that provide future service potential, such as additions, improvements, and replacements.
  • There are five types of plant assets: buildings, equipment, land, land improvements, and natural resources.
  • Land has an unlimited life and is not depreciated except in special situations such as loss in fertility of agricultural land.
  • All costs to acquire land and get it ready for use are included in its cost basis, including taxes, removing structures, assumption of mortgage or liens, conditioning, closing, purchase price, improvements, and government assessments.
  • The cost of removing structures, less any amounts recovered through the sale of salvaged materials, increases the basis of the land.
  • Additional land improvements that have an indefinite life increase the basis of the land.

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