Explain the accounting for plant asset expenditures. The cost of plant assets includes all…
Explain the accounting for plant asset expenditures.
The cost of plant assets includes all expenditures necessary to acquire the asset and make it ready for its intended use. Once cost is established, the company uses that amount as the basis of accounting for the plant assets over its useful life.
Companies incur revenue expenditures to maintain the operating efficiency and productive life of an asset. They debit these expenditures to Maintenance and Repairs Expense as incurred. Capital expenditures increase the operating efficiency, productive capacity, or expected useful life of the asset. Companies generally debit these expenditures to the plant asset affected.