a. Describe how to measure the cost of a plant asset? Would an ordinary cost of repairing the asset after it is placed in service be included in the asset's cost? b. What is another name for a partnership agreement? List eight items that the partnership's agreement should specify. c. Explain Revaluation of fixed assets? d. Describe Limited Partnership?
Answers
1).Plant assets are resources that have physical substance (a definite size and shape), are used in the operations of a business, and are not intended for sale to customer
It is important for companies to (1) keep assets in good operating condition, (2) replace worn-out or outdated assets, and (3) expand its productive assets as needed.
The cost principle requires that plant assets be recorded at cost.
Cost consists of all expenditures necessary to acquire an asset and make it ready for its intended use.
If a cost is not included in a plant asset account, then it must be expensed immediately. Such costs are referred to as revenue expenditures. Costs that are not expensed immediately, but are instead included in a plant asset account are referred to as capital expenditures.
Cost is measured by the cash paid in a cash transaction or by the cash equivalent price paid when noncash assets are used in payment. The cash equivalent price is equal to the fair market value of the asset given up or the fair market value of the asset received, whichever is more clearly determinable.
2) . Partnerships can be complex depending on the scope of business operations and the number of partners involved. To reduce the potential for complexities or conflicts among partners within this type of business structure, the creation of a partnership agreement is a necessity. A partnership agreement is the legal document that dictates the way a business is run and details the relationship between each partner.
- Contribution
- Distribution
- Ownership
- Decision making
- Dispute resolution
- Critical Development
- Dissolution
3). Revaluation of fixed assets is the process by which the carrying value of fixed assets is adjusted upwards or downwards in response to major changes in its fair market value. Revaluation is allowed under the IFRS framework but not under US GAAP.
Example:
Axe Ltd. purchased a building worth $200,000 on January 1, 2008. It records the building using the following journal entry.
Equipment —: 200,000
Cash —: 200,000
The building has a useful life of 20 years and the company uses straight-line depreciation. Yearly depreciation is hence $200,000/20 or $10,000. Accumulated depreciation as at December 31, 2010 is $10,000×3 or $30,000 and the carrying amount is $200,000 minus $30,000 which equals $170,000.
We see that the building remains at its historical cost and is periodically depreciated with no other upward adjustment to value.
4).A limited partner is a part-owner of a company whose liability for the firm's debts cannot exceed the amount that an individual invested in the company. Limited partners are often called silent partners.
A limited partner invests money in exchange for shares in the partnership but has restricted voting power on company business and no day-to-day involvement in the business.