Purpose: This case will review the costs to be capitalized for property, plant, and equipment.
Property, plant, and equipment generally represents a large portion of the total assets of a company. Accounting for the acquisition and usage of such assets is, therefore, an important part of the financial reporting process.
Instructions
(a) Distinguish between an expense and a capitalized expenditure. Explain why its distinction is important.
(b) Identify at least six costs that should be capitalized as the cost of land. Assume that land with an existing building is acquired for cash and that the existing building is to be removed immediately in order to provide space for a new building on that site.
(c) Identify at least five costs that should be capitalized as the cost of a building.
(d) Identify at least six costs that should be capitalized when equipment is acquired for cash.
(e) Describe the factors that determine whether expenditures relating to property, plant, and equipment already in use should be capitalized.