Faculty of business department of accounting an assessment of fixed asset managementin the

2.7 Cost of Plant Assets
The total cost of plant assets is the cash out lay, or its equivalent, made to acquire the asset and 
place it in operating condition. This is a clear and simple statement of the principle involved; 
however, problems arise in the application of this principle to practical situations. In essence, 
these problems rise their questions (1) what is included in the cost of plant assets? (2) How is the
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cost of plant assets measured? (3) How are costs subsequent to acquisition recorded? Each of 
these questions is examined in the following sections(Berk: 1990; 142).
2.8 Cost Subsequent Acquisition
Expenditures relating to plant assets formally are made throughout the economic life of such 
assets, whether these are expenses to be charged against current revenue or whether they should 
be capitalized often is a difficult question. The general approach for dealing with these 
expenditures may be stated as follows. Expenditures that for result in additional asset services, 
more valuable asset services or extension of economic life are capitalized and allocated to future 
revenue, expenditures to maintain plant assets in good operating condition recorded as expenses 
of the accounting period in which they are incurred. This approach is consistent with the 
principle of matching costs (Berk: 1990; 155)
2.9 Depreciation
The concept of depreciation is linked closely to the concept of business in come. Because part of 
the service potential of depreciation asset is exhausted in the revenue generating process each 
accounting period the cost of these services must be deducted from revenue in the measurement 
of net income, the expired cost must be recovered before a business enterprises is considered “as 
well as at the beginning of the period. ” Depreciation is the measurement of this expired cost 
(Bernard, 1993; 155).
Factors in the estimation of periodic depreciation