Plant Asset Disposals, Natural Resources, and Intangible Assets

Summary :

This chapter shows how to calculate and record the sale, retirement, and destruction of plant assets, and how to account for exchanges of nonmonetary assets. It covers determining the periodic depletion cost of a natural resource, depreciating plant assets on extractive industry property, recording the acquisition and amortization of intangible assets, and total assets turnover.

Disposing of plant assets

When a plant asset is sold, retired, or destroyed, its cost and accumulated depreciation must first be removed from the accounts, and any difference between the amount received, if any, and the asset's remaining book value is recorded as a gain or a loss. Exchanges of one nonmonetary asset for another follow a related but distinct set of rules for measuring the new asset's cost and recognizing any gain or loss on the transaction.

Depletion of natural resources

A natural resource such as timber, oil, or a mineral deposit is gradually consumed as it is extracted, and its cost is allocated to the units removed through depletion, calculated per unit and then applied to the quantity extracted during the period. Plant assets located on extractive industry property, such as roads or equipment built to support extraction, are depreciated in a manner that reflects the resource's own extraction pattern rather than a simple straight-line schedule.

Intangible assets

Intangible assets, such as patents, copyrights, trademarks, and goodwill, lack physical substance but still provide future economic benefit, and their acquisition cost is recorded and then amortized over their useful or legal life, whichever is shorter. The chapter closes by using total assets turnover, which relates net sales to average total assets, to analyze how effectively a company is using its full base of assets, tangible and intangible, to generate revenue.