They are not acquired for resale.

The matching principle indicates that the revenues of a period must be matched with the expenses of the same period for calculating the profit/loss of the period.

Total price= 150.000 +10.500 +5000 = 165.500

The cost of the land includes the following items; - purchase price - brokerage commission - survey and legal fees - property taxes in arrears - taxes assessed to transfer the ownership on the land - cost of clearing the land and removing unwanted buildings.

Installments are not included in the cost of the land. These type of separate long-lived assets are called land improvements.

3,450,000 +1,125,000 =3,575,000

Capitalization means recording the expenditure as an asset.

All assets, except land, lose their ability to provide services and wear out as they are used.

In order to measure the depreciation, three elements must be known;
The cost of the long-lived asset - The estimated residual value of the long lived asset - The estimated useful life of the long-lived asset

Double− Declining Balance Depreciation = (Cost − Accumulated Depreciation)x 2/ Useful Life
=(280.000 +20.000 - 0) x 2/5= 120.000 for the year 2018
= (300.000 - 120.000) x 2/5 = 72.000 for the year 2019

Assets are defined as the economic resources acquired by the business in order to benefit from them in the future. In fact, there is an expectation for the businesses to use the assets in their operations. Some of these assets can be converted into cash, sold, collected and consumed within one year or operation cycle which is shorter but some of the assets will be used in operations for more than a year. The first group of assets are called current assets whereas the latter is called non-current assets (long-term assets). Non-current assets are the assets that are acquired to use in the operations of the business for several years. Besides these assets, receivables that have due dates of more than one year will also be reported under non-current assets. In this chapter we will focus on Property, Plant and Equipment which generally holds the largest portion in noncurrent assets. The correct answer is D.

First of all, for an economic resource to be recognized as an asset, it must have a capacity of providing future benefit. Secondly, it must be controlled by the business and lastly the transaction that caused future benefit and control must occur in the past. The control property here indicates that an economic resource must be fully under control of a business but other parties don’t have a right of providing benefit from it. When the business rents a building to use in the operations, it cannot be recognized as an asset because the business doesn’t have full control on building. The correct answer is B.

Property, plant and equipment assets have the following major characteristics: They are acquired for use in operations and not for resale: Because those assets are acquired for use in operations for several years, they are recognized under non-current assets.
They are in long-term in nature and usually depreciated: Property, plant and equipment assets provide economic benefit for several years. This means that within the revenue the company earned these assets have contributions.
They possess physical substance: Property, plant and equipment have physical existences. They are also called tangible assets because of this characteristic.
The correct answer is D.

There are also some expenditures made for building and these expenditures yielded as extending the useful life of the asset and/or increasing the capacity of the asset. These kinds of expenditures must be capitalized. Capitalization means recording as an asset. In this context, if an expenditure extends the useful life and/or increases the capacity of an asset, it must be added to the cost of the related asset. The correct answer is B.

There are also some regular maintenance operations during the life of property, plants and equipment. As for the building, it may be the inside paintwork, some repairs, etc. These expenditures will not be added to the cost of the building, because they do not extend the useful life or increase the capacity of the asset. These kinds of expenditures will be recognized as a period expense and are debited to Repairs and Maintenance Expense account. The correct answer is C.

A capital expenditure (balance sheet expenditure) is debited to an asset account because it increases the asset’s capacity or efficiency or extends the asset’s useful life. A capital expenditure is reported on the balance sheet as an asset. The correct answer is A.

These costs incur only at the initial recognition of machinery and equipment. In other words, for the first recognition of these assets, expenditures made for bringing them to their initial use are capitalized. Assume that the machinery has been installed and the company is using them. After three years of using, the company needs to move and settle to a new location. In this case, the expenditure for disassembling and reassembling the machinery, transportation charges, insurance during transportation, etc. will not be capitalized. They will be recorded as period expenses. The correct answer is A.

The cost of the vehicles include the purchase price and other necessary expenditures made to bring them to their intended uses. If the expenditure made for vehicles extends the useful life of the vehicle and/ or increases the capacity, like modification or engine renewal, then these expenditures will be capitalized. But the regular maintenance expenditures such as oil change or minor engine repairs will be recorded as period expenses. The correct answer is D.

Straight-line depreciation method allocates the depreciable cost of the asset equally to its useful life and is calculated as follows:
Depreciable Cost = Cost of the asset - Residual value
Straight − linedepreciation = DepreciableCost x 1 / Useful life

The residual value (also called salvage value) and the useful life of the asset are estimations. The company should estimate the cash value of the asset at the end of its useful life. In other words, residual value is the amount that the company will receive when it is sold at the end of its useful life. By considering together, the company will find out the depreciable cost of the asset. Depreciable cost is the cost when residual value is subtracted from capitalized cost of the asset. The correct answer is E.

It was recorded as a period expense. The correct answer is A.

The renovation expenditure brought a large transformation in minivan. Thus, the expenditure will be capitalized.
It is recorded as the renovation expense of minivan. The correct answer is B.

Depreciation is the allocation of long-term asset’s cost to expense over its useful life. The correct answer is C.

The annual depreciation expense is 40,000 TL for the machinery. Over the useful life of the machinery, every year the company will record 40,000 TL depreciation expense.
Purchase Price 200,000 TL
(+) Additional Costs 25,000 TL
Transportation & Ins. 20,000 TL
Assembly & Testing 5,000 TL
Cost of the machine 225,000 TL
(-) Residual Value (25,000) TL
Depreciable Cost 200,000 TL
Straight − linedepreciation = 200,000 x 1/5 years = 40,000 TL
The correct answer is C.

Purchase Price 200,000 TL
(+) Additional Costs 25,000 TL
Transportation & Ins. 20,000 TL
Assembly & Testing 5,000 TL
Cost of the machine 225,000 TL
Residual Value 45,000 TL
Double - Declining Balance Depreciation 1st Year=
(225,000−0)x2/5=90,000 TL
Double - Declining Balance Depreciation 2nd Year=
(225,000−90,000)x 2/5=54,000 TL
Double - Declining Balance Depreciation 3rd Year=
(225,000−144,000)x 2/5=32,400 TL
The correct answer is D.

Purchase Price: 10,000,000 TL
Double - Declining Balance Depreciation 1st Year=
(10,000,000 − 0)x 2/10=2,000,000 TL
Double - Declining Balance Depreciation 2nd Year=
(10,000,000 − 2,000,000)x 2/10=1,600,000 TL
The correct answer is B.

Anadolu Co. sells its machine for 150,000 TL. AnadoluCo. receives 150,000 TL cash and it exceeds the book value of 140,000 TL. Thus, a gain of 10,000 TL is recorded.

The ordinary repairs are called revenue expenditures (income statement expenditures). Revenue expenditures do not increase the capacity or efficiency of an asset or extend its useful life and are reported on the income statement as an expense in the period incurred. The correct answer is C.

Cost is the cash or cash equivalent price of obtaining the asset plus all necessary taxes, purchase commissions and all other amounts paid to ready the asset for its intended use. The correct answer is E.

Depreciable Cost = Cost of the asset - Residual value
Capitalized cost minus estimated residual value is called depreciable cost. The correct answer is B.

Assets are defined as the economic resources acquired by the business in order to benefit from them in the future. In fact, there is an expectation for the businesses to use the assets in their operations. Some of these assets can be converted into cash, sold, collected and consumed within one year or operation cycle which is shorter but some of the assets will be used in operations for more than a year. The first group of assets are called current assets whereas the latter is called non-current assets (long-term assets). Non-current assets are the assets that are acquired to use in the operations of the business for several years. Besides these assets, receivables that have due dates of more than one year will also be reported under non-current assets. Property, Plant and Equipment generally hold the largest portion in noncurrent assets. As can also be understood from the information given, “The assets that will be used in operations for more than a year.” and “Receivables that have due dates of more than one year” can be recognized as non-current assets, so the correct answer is C.
“The assets that can be converted into cash, sold, collected and consumed within one year or operation cycle which is shorter” are called currents assets. “A factory building rented to use in the operations.” can not be reported under assets. When the business rents a building to use in the operations, it cannot be recognized as an asset because the business doesn’t have full control on building. For example, the business cannot sell the building to anyone.. But there is one exception at this point. Leasing transactions provides companies use the property, plant and equipment assets within a rental agreement. At the end of the agreement the user company called as “lessee” takes over the property of the asset from the owner (lessor) company. During the rental period, lessee makes the rental payments. Though a leasing transaction seems as if it is a rental transaction, because the ownership of the asset is handed over to the user company, according to the substance over legal form concept of accounting. The legal form of this transaction is a rental transaction but as the asset is going to be taken over from the owner at the end of the rental agreement, economic substance of the transaction steps forward and the economic resource acquired by a leasing transaction recognized as an asset.

Property, plant and equipment assets are economic resources that have physical substance (tangible), are used in the operations of a business, and are not intended for sale to customers.
Property, plant and equipment assets have the following major characteristics:

• They are acquired for use in operations and not for resale: Because those assets are acquired for use in operations for several years, they are recognized under non-current assets. Otherwise, they would either be reported under merchandise inventory or reported as an expense.
• They are in long-term in nature and usually depreciated: Property, plant and equipment assets provide economic benefit for several years. This means that within the revenue the company earned these assets have contributions. In other words, by using these assets their benefits are consumed. As you remember, the matching principle indicates that the revenues of a period must be matched with the expenses of the same period for calculating the profit/loss of the period. So the cost of the long-lived assets should be divided into their useful lives. This allocation of a long-lived asset’s cost over its useful life is called depreciation. Their whole costs must not be recognized as an expense for the year they are acquired. -
• They possess physical substance: Property, plant and equipment have physical existences. They are also called tangible assets because of this characteristic.

As can also be understood from the information given, “They are acquired for use in operations and not for resale.”, “They possess physical substance.”, “They are not intended for sale to customers.” and “They are economic resources that have physical substance (tangible)” are correct statements, so the correct answer is D.
The statement “They are in short-term in nature and usually depreciated.” is not correct. They are in long-term in nature and usually depreciated.

The decision to acquire a long-term asset is a complex process. The historical cost principle requires that companies record property, plant and equipment assets at their actual cost. So, what is cost? Cost consists of all expenditures necessary to acquire the asset and make it ready for its intended use.4 According to the historical cost principle, cost is the cash or cash equivalent price of obtaining the asset and bringing it to the location and condition necessary for its intended use5. So, pay attention to the expression “bringing it to the location and condition necessary for its intended use”. This means that the cost of the property, plant, and equipment assets does not only consist of the purchase price of the asset. Added to the purchase price cash or cash equivalent prices for transferring, installment, assembling, insurance during transfer, permits, etc. must be included. As can also be understood from the information given, the correct answer is D. The statements “Cost is the cash or cash equivalent price of obtaining the asset and bringing it to the location and condition necessary for its intended use.”, “The cost of the property, plant, and equipment assets does not only consist of the purchase price of the asset.” and “Added to the purchase price cash or cash equivalent prices for transferring, installment, assembling, insurance during transfer, permits, etc. must be included.” are correct. The statement “Cost consists of some expenditures necessary to acquire the asset and make it ready for its intended use.” is not correct because cost consists of all expenditures necessary to acquire the asset and make it ready for its intended use.

All expenditures made to acquire land and ready it for intended use are considered as the part of the land cost. The cost of the land includes the following items:

• purchase price
• brokerage commission
• survey and legal fees
• property taxes in arrears
• taxes assessed to transfer the ownership on the land
• cost of clearing the land and removing unwanted buildings

As can also understood from the list given, the correct answer is E. The cost of the land includes all the items in the options.

For example, Bar Co. purchases a land for constructing a warehouse. On the land, there is a ruined old mansion. In order to use the land for its intended use, the ruined old mansion must be removed and the land must be cleared for construction. The cost of removing and clearing operations must also be added to the cost of land. After the removal, the debris were sold. The receipt will be a reduction in the cost of the land. Bar Co. installs paving from and to the warehouse. Also, installs signs and street lights. These installments are not included in the cost of the land. These type of separate long-lived assets are called land improvements.
Land improvements are structural additions made to land, such as driveways, parking lots, fences, landscaping, and underground sprinklers.
As can also be understood from the information given, “The cost of clearing the land and removing unwanted buildings” must be added to the cost of land. The installments such as such as driveways, parking lots, fences, landscaping, and underground sprinklers.are not included in the cost of the land, so the correct answer is E.

The ordinary repairs are called revenue expenditures (income statement expenditures). Revenue expenditures do not increase the capacity or efficiency of an asset or extend its useful life and are reported on the income statement as an expense in the period incurred.
A capital expenditure (balance sheet expenditure) is debited to an asset account because it increases the asset’s capacity or efficiency or extends the asset’s useful life. A capital expenditure is reported on the balance sheet as an asset.
As can also be understood from the information given the statements “The ordinary repairs are called revenue expenditures (income statement expenditures).” and “A capital expenditure is reported on the balance sheet as an asset.” are correct, so the correct answer is B. The statement “Revenue expenditures are debited to an asset account because they increase the asset’s capacity or efficiency or extend the asset’s useful life.” is not correct, because “Revenue expenditures do not increase the capacity or efficiency of an asset or extend its useful life and are reported on the income statement as an expense in the period incurred.”. The statement “A capital expenditure (balance sheet expenditure) does not increase the capacity or efficiency of an asset or extend its useful life and is reported on the income statement as an expense in the period incurred.” is not correct, either. “A capital expenditure (balance sheet expenditure) is debited to an asset account because it increases the asset’s capacity or efficiency or extends the asset’s useful life.”

Company A makes some expenditures for the machine. Purchase price is included in the cost of machinery. Company B makes an expenditure for 25,000 TL for the machine in order to increase the production capacity of the machine. As you remember, if the expenditure increases the capacity or productivity of the asset and/or extends the useful life then this expenditure will be added to the cost of the asset. Therefore, Machinery and Equipment account is debited in this transaction. Company C pays 5,000 TL for the annual maintenance of the machine. In this transaction, the expenditure does neither extend the useful life of the machine nor increases the capacity or productivity. So, these kinds of expenditures will not be added to the cost of the machine. They will be recorded as period expense. To shorten the distance between suppliers, Company D decides to move the factory to Organized Industrial Zone and pays 150,000 TL for disassembling and reassembling of the machines and 100.000 TL. for the transportation. Even though the expenditures are made for the assets to bring them to their intended uses, they will be recorded as period expenses; because this criterion is applied just for the initial recognition of the assets. When the assets are ready to use, only the expenditure that will affect their useful lives and capacity will be added to the cost. Otherwise they will be recorded as a period expense.
As can also be understood from the information given the correct answer is B. Company A and Company B can include the expenditures mentioned in the cost of machinery and equipment, but Company C and Company D can record their expenditures as a period expense.

The cost of the vehicles include the purchase price and other necessary expenditures made to bring them to their intended uses. If the expenditure made for vehicles extends the useful life of the vehicle and/ or increases the capacity, like modification or engine renewal, then these expenditures will be capitalized. But the regular maintenance expenditures such as oil change or minor engine repairs will be recorded as period expenses. As can also be understood from the information given, the correct answer is C. Expenditures made for oil change and minor engine repairs will be recorded as period expenses. Expenditures made for modification and engine renewal extend the useful life of the vehicle and/ or increase the capacity, then these expenditures will be capitalized.

Straight-line depreciation method allocates the depreciable cost of the asset equally to its useful life.
Double-declining balance depreciation method produces a decreasing annual depreciation expense over the asset’s useful life. The statements in the options I and II are not correct. “Cost of the asset - Accumulated Depreciation” is called the “Book Value” of the asset. Units-of-production depreciation method depreciates by units rather than by years. As can also be understood from the information given, the correct answer is C.

Property, Plant and Equipment assets remain on the business’s accounting books until they are disposed of. Companies dispose of property, plant and equipment assets which are no longer useful for the company. Eventually, a long-lived asset wears out or becomes obsolete. When plant assets are no longer useful because they have physically deteriorated or become obsolete, a company can dispose them by discarding, selling them for cash, or exchanging them for a new long-lived asset. The disposal of property, plant and equipment assets can take one of three forms:

• Discard (retire) the long-lived asset.
• Sell the long-lived asset for cash.
• Exchange the long-lived asset for another long-lived asset.

Discarding (retiring) of property, plant and equipment assets involve disposing of the asset for no cash. If an asset is disposed of when it is fully depreciated and has no residual value, then the original cost and accumulated depreciation of the long-lived asset are simply written off the accounting books. There is no need to bring the depreciation up to date because the asset is already fully depreciated. In addition, no gain or loss is recognized because no cash was received or paid. A loss is recognized if a company retires a long-lived asset before it is fully depreciated and no cash is received for residual or salvage value. If a long-lived asset is still being used, its cost and accumulated depreciation should remain in the ledger even if the asset is fully depreciated until the company discard the asset. The company may continue to report it on balance sheet even though no additional depreciation expense is recorded.
Accounting for the sale of a long-lived asset is essentially the same as accounting for its discarding except that cash is received in the exchange. In a disposal by sale for cash, the company compares the book value of the asset with the cash received from the sale. If the cash received from the sale exceed the book value of the long-lived asset, a gain on disposal occurs. If the cash received from the sale is less than the book value of the long-lived asset sold, a loss on disposal occurs.
If exchanges have commercial substance (which is when there is a change in cash flow resulting from the transaction), the parties should recognize a gain or loss on the exchange. The old asset will be removed from the accounting books, and the new asset will be recorded at its market value. Most of the exchanges have commercial substance (even when similar assets are exchanged).
As can also be understood from the information given, all the options are the forms of the disposal of property, plant and equipment assets, so the correct answer is E.

Depreciation does not create funds. It provides the cost of the asset to be distributed by distributing it to periods.

All assets, except land, lose their ability to provide services and wear out as they are used. The correct answer is C.

Capitalization means recording the expenditure as an asset. In this respect, except for C, those given in other options are a capital expenditure.

Goodwill is an intangible asset. Other elements given in the case are tangible assets.

Accelerated depreciation generates higher depreciation expense immediately, and therefore lowers tax payments in the early years of the asset’s life.

(35.000-8.000)/5X12=1.350

(35.000-8.000)/5=5,400 annual depreciation expense
5,400 TL depreciation expense for 2012
5,400 TL depreciation expense foe 2013
Accumulated depreciation at the end of 2013 10,800 TL
Book Value at the end of the 3013 (35.000-10.800=) 24.200 TL

35.000X0.4=14.000
35.000-14.000=8.400 depreciation for 2013

[23.000X (2/4)]=11.500
(23.000-11.500)x(2/4)=5.750
11.500+5.750=17.250

The depreciated cost is the deduction of the estimated residual value from the cost of a tangible asset.

INTRODUCTION
Non-current assets are the assets that are acquired to use in the operations of the business for several years.

Property, plant and equipment assets have the following major characteristics:

• They are acquired for use in operations and not for resale
• They are in long-term in nature and usually depreciated
• They possess physical substance

Cost of Land and Land Improvements
The cost of the land includes the following items;
- purchase price
- brokerage commission
- survey and legal fees
- property taxes in arrears
- taxes assessed to transfer the ownership on the land
- cost of clearing the land and removing unwanted buildings.

Cost of Land and Land Improvements
Land improvements are structural additions made to land, such as driveways, parking lots, fences, landscaping, and underground sprinklers.

Cost of Buildings
A capital expenditure (balance sheet expenditure) is debited to an asset account because it increases the asset’s capacity or efficiency or extends the asset’s useful life. A capital expenditure is reported on the balance sheet as an asset.

Like the other long-lived assets, the cost of machinery and equipment includes all the necessary expenditures for the machines and equipment to become available for their intended use. In addition to purchase price, transportation charges, insurance while in transit, installation costs and the cost of testing before using are included in the cost of machinery and equipment9. Assume that the test results are perfect. When the test product sold, the earned revenue will decrease the cost of the machine.

As mentioned previously in this chapter, depreciation is the allocation of long-term asset’s cost to expense over its useful life. All assets, except land, lose their ability to provide services and wear out as they are used. Thus, the costs of long-lived assets should be recorded as an expense over their useful lives. This periodic recording of the cost of long-lived assets as an expense is called depreciation.Property, Plant and Equipment assets include the assets that the company will use for more than a year.

To overcome these kinds of problems, there are various depreciation methods for the companies to apply but three are used most commonly:
- Straight-line Depreciation Method
- Double Declining Balance Depreciation Method
- Units-of-production Depreciation Method

Measuring Depreciation
Double-declining-balance depreciation expense amounts can be computed using the following formula:
Double−DecliningBalance Depreciation=(Cost−Accumulated Depreciation)x2Useful Life

DISPOSING OF PROPERTY, PLANT AND EQUIPMENT ASSETS
If the long-lived asset is no longer useful, it is disposed. In such a case, the company will remove the asset and associated accumulated depreciation from the accounts. Regardless of the type of disposal, there are four steps:
1. Bring the depreciation up to date.
2. Remove the old, disposed-of asset and associated accumulated depreciation from the accounts.
3. Record the value of any cash received (or paid) in the disposal of the asset.
4. Finally, determine the amount of any gain or loss. Gain or loss is determined by comparing the cash received and the market value of any other assets received with the book value of the asset disposed of.

1. They are acquired for use in operations and not for resale.
2. They are in long-term in nature and usually depreciated.
3. They possess physical substance.

They are all true for the property, plant and equipment.

Cost is the cash or cash equivalent price of obtaining the asset plus all necessary taxes, purchase commissions and all other amounts paid to ready the asset for its intended use.

The cost of the land includes the following items;
purchase price - brokerage commission - survey and legal fees - property taxes in arrears - taxes assessed to transfer the ownership on the land - cost of clearing the land and removing unwanted buildings.

Here in this example, the cost of the building consists of the sum of purchase price and the title deed fee. It is a necessary payment for the company in order to acquire the building. Thus, title deed fee should be added to the cost of the building.
There are also some regular maintenance operations during the life of property, plants and equipment. As for the building, it may be the inside paintwork, some repairs, etc. These expenditures will not be added to the cost of the building, because they do not extend the useful life or increase the capacity of the asset.
The Cost is 2,500,000 +100,000 = 2,600,000 TL

=100,000 + 5,000 + 1,000 + 8,500 + 7,500
=122,000

The renovation expenditure brought a large transformation in minivan. Thus, the expenditure will be capitalized.
So the cost is= 300,000 +50,000=350,000TL

In order to measure the depreciation, three elements must be known; - The cost of the long-lived asset - The estimated residual value of the longlived asset - The estimated useful life of the long-lived asset

Capitalized cost minus estimated residual value is called depreciable cost.

Depreciable Cost = Cost of the asset - Residual value
=(200,000+20,000) - 40,000 =180,000
Straight − line depreciation = DepreciableCost x 1/Useful life
=180,000 x (1/5)= 36,000 TL

The disposal of property, plant and equipment assets can take one of three forms:
• Discard (retire) the long-lived asset.
• Sell the long-lived asset for cash.
• Exchange the long-lived asset for another long-lived asset.