Determining the Acquisition Cost of Plant Assets

Determining the Acquisition Cost of Plant Assets The acquisition cost of a plant asset is the cash or cash equivalent purchase price, as well as any incidental costs required to complete the purchase, transport the asset, and prepare it for use. These costs are typically allocated over the asset's useful life according to the matching principle, rather than being charged as expenses in the current period.

The acquisition cost of land includes the negotiated cash price, as well as any additional costs such as land surveys, legal fees, title fees, and broker's commissions. Land is not subject to depreciation because it does not have a limited useful life. However, if the primary purpose of acquiring land is speculation, it may be classified as an investment. If the land is held by a real estate concern for resale, it should be classified as inventory.

The cost of an existing building includes the purchase price and any repairs or other expenses required to make it usable. The cost of a new building includes all reasonable and necessary expenditures such as materials, labor, overhead, and indirect costs, as well as fees for architects, engineers, and lawyers, insurance during construction, and interest on construction loans.

The cost of equipment includes the invoice price, transportation and handling charges, insurance while in transit, and assembly and installation costs. Any expenses incurred in getting the equipment ready for its intended use are also included in the cost of the asset.

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