Question

Listed below are certain costs (or discounts) incurred in the purchase or construction of new plant assets. (1) Indicate whether the costs should be expensed or capitalized (meaning they are included in the cost of the plant assets on the balance sheet). (2) For costs that should be included in plant assets, indicate in which category of plant assets (Equipment, Building, or Land) the related costs should be recorded on the balance sheet.

1. Charges incurred to train employees to use new equipment
2. Invoice cost to purchase new equipment
3. Deduction for an early payment discount taken on the purchase of new equipment
4. Real estate commissions incurred on land purchased for a new plant
5. Property taxes on land incurred after it was purchased
6. Costs of tune-up for the truck used to deliver new equipment
7. Costs to lay the foundation for a new building
8. Insurance on a new building during the construction phase

Short answer

1. Expensed: -Transaction 1, 5 and 6 are related to the expense account thus they stated under category Expensed.
   Capitalized: - Transaction 2, 3, 4, 7 and 8 are related to the capital account of the company thus, they stated under category Capitalized.
2. Equipment: - Transaction 1, 2, 3, and 6 are related to the equipment
   Building: - Transaction 7 and 8 are related to building.
   Land: - Transaction 4 and 5 are related to land.

Step-by-step solution

Plan assets

Property, plant, and equipment assets are also known as plant assets. Plant assets are resources that have physical substance and are used in the operations of a business. These are not intended for sale to the customer. They are expected to be used by the company for several years.

Solution

	Particulars	Expensed or capitalized	Asset’s category
1	Charges incurred to train employees to use new equipment	Expensed	Equipment
2	Invoice cost to purchase new equipment	Capitalized	Equipment
3	Deduction for an early payment discount taken on the purchase of new equipment	Capitalized	Equipment
4	Real estate commissions incurred on land purchased for a new plant	Capitalized	Land
5	Property taxes on land incurred after it was purchased	Expensed	Land
6	Costs of tune-up for the truck used to deliver new equipment	Expensed	Equipment
7	Costs to lay the foundation for a new building	Capitalized	Building
8	Insurance on a new building during the construction phase	Capitalized	Building