Identify the main difference between a plant assets and inventory, b plant assets and current assets, c plant assets and long-term investments

This refers to the amount of money that a company hopes to earn after selling an asset that has already served its useful life. As it involves heavy investment, proper controls should be put in place to secure the assets from damage, pilferage, theft, etc.

In the above graph that shows yearly depreciation, straight-line depreciation is uniform at Birr 1375 per year over the four years period. However, the declining balance method begins at an amount greater than straight line (Br.3000) and decreases each year to amounts that are less than straight line (ultimately, Br. 250). The production method does not generate a regular pattern because of the random fluctuation of the depreciation from year to year. In general companies use different methods of deprecation for goods reason. In contrast, intangible assets are assets without a physical feature that can be charged in the operations of business for long period of time.

Accounting Topics

These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy. In such a case, the productivity of the asset for the partial year is used in computing the depreciation. Depreciation stops when the asset’s book value equals its expected salvage value.

Indicate how long-lived assets are reported on the balance sheet. Learn the definition of a plant asset and understand how they are accounted for. Discover what a plant asset is in a company with examples. Depreciation refers to the cost allocation of an asset to expense through its useful life. Current assets are assets that can be quickly converted into cash within one year.

Classifying an Asset as a Plant Asset

Plants are a part of the property, plants, and equipment, or PP&E, account. PP&E has a useful life longer than one year, so plants are considered a non-current asset.

It may also be a factory that houses the production process of the business. These assets often provide long-lasting benefits to the business, which is why they are still sought after even though they can be expensive. A business, even the small ones, will own some form of assets eventually . Shipboard & MarineShipboard & Marine Explore asset tags for use in marine operating conditions exposed to saltwater spray. ManufacturingManufacturing Explore asset tags designed to last in harsh manufacturing conditions.

RFID Asset Tracking: What Is It?

The only exception is land, which does not have a limited useful life, so cannot be depreciated. Other assets, and other expenditures which meet the criteria. Based in San Diego, Calif., Madison Garcia is a writer specializing in business topics. Garcia received her Master of Science in accountancy from plant assets San Diego State University. An exchange has commercial substance if the future cash flows change as a result of the exchange. Franchise with an indefinite life should be carried at cost and not amortized. Franchise with a limited life should be amortized to expense over the life of the franchise.

• When costs can be identified with the acquisition of the franchise or license, an intangible asset should be recognized.
• Legal costs of protecting a patent in an infringement suit are added to the Patent account and amortized over the remaining life of the patent.
• There might also be incidental costs relating to disposing of the asset.
• The declining-balance approach can be applied at different rates, which result in varying speeds of depreciation.

When talking about plant assets and their characteristics. It’s important to remember the key examples of plant assets include; cars, buildings, machinery, equipment, etc. Plant assets are not inventory because they are intended for day-to-day operations of the business throughout its life. They are not for sale but be deposed off after having depreciated when the company wishes to liquidate assets. The key components of current assets are cash and cash equivalents, marketable securities, accounts receivable, inventory, prepaid expenses, and other liquid assets. It excludes noncurrent assets such as property, plant, and equipment, intangible assets, and goodwill. P. 395The accounting for plant assets reflects these two features.

This is why they are recorded in the books of accounts as long-term assets, specifically in a company’s balance sheet. Once a piece of equipment is acquired, it is not immediately registered as an expense. Asset costs are, however, considered throughout each asset’s lifespan. DateAccountDebitCreditSep-15Accumulated https://www.bookstime.com/ Depreciation$5,600Cash$2,000 Gain on disposal of equipment$ 600 Equipment$7,000To record disposal of equipmentThe journal entry is now in balance. The journal entry started with what we already knew – the cost and accumulated depreciation.

• It’s impossible to manufacture products without equipment and machinery, or a building to house them.
• They are not for sale but be deposed off after having depreciated when the company wishes to liquidate assets.
• It is consistent with the matching rule to allocate more depreciation to the early years than to later years if the benefits or services received in the early years are greater.
• As indicated earlier, all costs of getting an asset ready for its intended use are costs of that asset.
• With its current assets of $1,000,000 and current liabilities of $700,000, its current ratio would be 1.43.
• NB. If an asset within the composite group is retired before, or after, the average service life of the group is reached, the resulting gain or loss should not be recognized.