Asset Accounting: Acquisition, Depreciation, and Amortization
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Asset Accounting Fundamentals
Asset Acquisition
The acquisition cost of an asset includes all expenditures necessary to prepare the asset for its intended use.
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Acquisition Cost Calculation:
Purchase Price + All Expenditures Needed to Prepare the Asset (e.g., repair costs, real estate fees, title fees, installation costs, transportation costs).
Does NOT include financing charges or cash discounts.
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Acquisition by Construction:
Costs include three main components:
- All materials and labor
- Factory overhead
- Interest on debt incurred during construction
Capitalization, Depreciation, and Amortization
Capitalization involves recording an expense as an asset to spread its cost over its useful life.
Capitalization vs. Expensing
- Capitalization (Asset Account Debit