Purchased Plant Assets Recording

D

Fixed assets are recorded at cost, which includes all normal and reasonable expenditures necessary to get the asset in place and ready to use.

When purchased, plant assets are recorded at their cost. This is indicated by the answer choice D: cost.

Plant assets, also known as property, plant, and equipment (PPE), are long-term tangible assets that are used in the production or operation of a business. Examples of plant assets include buildings, machinery, equipment, vehicles, and land.

According to the Generally Accepted Accounting Principles (GAAP), when plant assets are acquired, they are initially recorded on the balance sheet at their historical cost. The historical cost refers to the actual amount paid or the fair value of the consideration given to acquire the asset, including all costs necessary to bring the asset to its intended use.

The cost of a plant asset includes the purchase price, transportation costs, installation costs, legal fees, and any other costs directly attributable to acquiring and preparing the asset for use. For example, if a company purchases a building for $500,000, pays $10,000 in legal fees, and incurs $5,000 in transportation and installation costs, the cost of the plant asset would be $515,000 ($500,000 + $10,000 + $5,000).

The rationale behind recording plant assets at cost is to provide reliable and objective information about the value of the assets on the company's financial statements. Cost is considered a reliable measure because it represents an actual transaction and can be objectively determined. It also ensures consistency in financial reporting and allows for proper matching of expenses with revenues over the asset's useful life.

It's worth noting that while plant assets are initially recorded at cost, they are subsequently depreciated over their useful lives to reflect their gradual consumption or wear and tear. Depreciation expense is recognized over time to allocate the cost of the asset to the periods in which it contributes to revenue generation.