Wiley GAAP 2013: Interpretation and Application of Generally Accepted Accounting Principles

CHAPTER 14

PROPERTY, PLANT, AND EQUIPMENT

Perspective and Issues

Definitions of Terms

Concepts, Rules, and Examples

Property, Plant, and Equipment

Cost considerations

Asset retirement obligations

Environmental remediation costs

Depreciation and depletion

Impairment and disposal

PERSPECTIVE AND ISSUES

Long-lived assets are those expected to provide an economic benefit to the reporting entity for a period greater than one year. GAAP regarding long-lived assets involves the determination of the appropriate amounts at which to initially record the assets—which amounts are to include costs associated with any legal obligations to eventually retire the assets and the cost of interest incurred during construction. In addition, determinations must be made of the appropriate method to be used to allocate those amounts over the periods to be benefited, subsequent increases in carrying value attributable to changes in the estimates of retirement costs to be incurred, the measurement of impairment losses, and the accounting for assets to be disposed of rather than kept in service.

Long-lived assets are primarily operational assets and are classified into two basic types: tangible and intangible. Tangible assets have physical substance and are categorized as follows:

1. Depreciable

2. Depletable

3. Other tangible assets not subject to amortization (such as land)

Intangible assets have no physical substance. Their value is based on the rights or privileges to which they entitle the reporting ...