FIXED ASSET
Seventh’s Meeting Class
For
Introducing to Accounting II
Undergraduated Program
Of
Accountancy
Economic Faculty of Dian Nuswantoro
Semarang – Central Java
Indonersia
Objectives
1. Define fixed assets and describe the accounting for their cost.
2. Explain the cost of Lands
3. Explain the cost of Building
4. Explain the cost of Machenery
5. Explain the cost of Equipment
CARACTERISTIC
Fixed assets are long term or relatively permanent assets
Fixed assets are tangible assets because they exist physically.
They are owned and used by the business and are not held for sale as part of normal operations.
Cost Of Fixed Asset
Land
> Purchase price
> Sales taxes
> Permits from government agencies
> Broker’s commissions
> Title fees
> Surveying fees
> Delinquent real estate taxes
> Razing or removing unwanted buildings, less the salvage
> Grading and leveling
> Paving a public street bordering the land
Example :
THE COMPANY HAS EXPNEDITURE AS FOLLOW :
1. CASH PRICE OF PROPERTY $. 100.000
2. NET REMOVAL COST 6.000
3. ATTORNEY’S FEE 1.000
4. REAL ESTATE BROKER’S COMMISSIION 8.000
COST OF LAND $. 115.000
LAND IMPROVEMENT
Land Improvement : are structural addition made to land.Examples are
Drive-land, parking lots, fences, landscaping and underground sprinklers.
The cost of land improvement includes all expenditures necessary to make
Improvement ready for their intended use.
For example, the cost of new parking lot for HOME DEPOT includes the amount
Paid for paving, fencing and lighting. Thus home depot debits to land improvement
Total of all of these costs.
BUILDINGS
> Architects’ fees
> Engineers’ fees
> Insurance costs incurred during construction
> Interest on money borrowed to finance construction
> Walkways to and around the building
Equipment
> Sales taxes
> Freight
> Installation
> Repairs (purchase of used equipment)
> Reconditioning (purchase of used equipment)
Equipment
> Insurance while in transit
> Assembly
> Modifying for use
> Testing for use
> Permits from governmental agencies
ILLUSTRATION
FACTORY MACHENERY :
Cash Price $ 50.000
Sales Taxes $ 3.000
Insurance $ 500
Installation and testing $ 1.000
Cost of Factory Machenery $ 54.500
MERCHANDISING INVENTORY
Objectives
> Describe the accounting for the sale of merchandise.
> Describe the accounting for the purchase of merchandise.
> Describe the accounting cycle for a merchandising business.
> Explain the computations and importance of gross profit.
PERPECTUAL METHODE
> Under this method, each purchase and sale of merchandise is recorded in the inventory and the cost of merchandise sold accounts.
> The amount of merchandise available for sale and the amount sold are continuously disclosed in the inventory records.
RECORDING SALES
.Companies record sales revenue, likes service revenues, when earned,in compliance with the revenue recognition principle.Typically, companies earn sales revenues when the goods transfer from the seller to the buyer. At this point the sales transaction is completed and the sales price establihesed
To illustrated a credit sales transaction , AW Electric records its May 5, sale of $ 3.800,- to Joe Stereo as follows, and assume the cost of merchandise is $ 2.400
May 4 Account Receivable 3.800
Sales 3.800
( to record credit sales to Joe )
May 4 Cost of Goods Sold 2.400
Merchandise Inventory 2.400
( to record cost of merchandise sold )
SALES RETURN and ALLOWANCE
Make assume that Joe Electric returned the goods as $ 300, and the cost of
Merchandise inventrory is $ 140.
May, 6
NOTES RECEIVABLE
Objectives
> Explain how companies recognize notes recievable
> Discribe how companies value notes trecievable
> Describe the entries to record the disposition of notes recievable
DETERMINING
THE MATURITY DATE
RECOGNIZING NOTES RECEIVABLE
> The company records the note receivable at its FACE VALUE, the amount shown
On the face of the note.No interest revenue is reported when the note is accepted
Because the revenue recognition principle does not recognize revenue untill earned
Interest is earned (accrued) as time passes.
> To Illustrate the basic entry. Let’s use the $1.000,- two-month, 12% promissory
From Joke, Co. to WestMa, Co, so, WesMa, Co will entry as follow :
VALUING NOTES RECEIVABLE
> Valuing short-term notes receivables is the same as valuing account receivable
> Companies report short-term notes receivable at their cash (net) realizable value
> The notes receivable allaowance account is allowance for doubtful accounts
> The estimations involved in determining cash realizable value and in recording bad > debt expense and related allowance are done similarly to accounts receivable
DISPOSING of NOTES RECEIVABLE
1) HONOR OF NOTES RECEIVABLE
A note is honored when its maker pay it in full at its maturity date. For an interest bearing note, the amount due at maturity is the face value of the note plus interest for the length of time specified on the note
2) DISHONOR OF NOTE RECEIVABLE
A dishonored note is a note that is not paid in full at maturity. A dishonored note receivable is no longer negotiable. However, the payee still has a claim against the maker of the note.Therefore the note holder usually transfer the notes receivable account to an account receivable.
