CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 18-1 Buying Plant Assets and Paying Property Tax Original created by M.C. McLaughlin, Thomson/South-Western Modified by Deborah L. Burns, Johnston County Schools, West Johnston High School

CENTURY 21 ACCOUNTING © Thomson/South-Western Buying Plant Assets & Paying Property Tax Assets that will be used for a number of years in the operation of a business are known as plant assets. A business may have several types of plant assets, including equipment, buildings, & land Businesses often subdivide plant assets into more focused categories & create an account for each category Office equipment Warehouse equipment Automobiles Computers Furniture & Fixtures 2 LESSON 18-1

CENTURY 21 ACCOUNTING © Thomson/South-Western Buying Plant Assets & Paying Property Tax Most plant assets are useful for only a limited period of time Over time, most equipment wears out and loses value The cost of a plant asset should be depreciated over its useful life Each plant asset account should have a related accumulated depreciation account – a contra asset account – to accumulate the annual depreciation expanse of the plant assets in the account Land is generally not subject to depreciation. It is considered permanent and is not depreciated 3 LESSON 18-1

CENTURY 21 ACCOUNTING © Thomson/South-Western RECORDING THE BUYING OF A PLANT ASSET Procedures for recording the buying of a plant asset are similar to procedures for recording the buying of current assets such as supplies The amount paid for a plant asset is debited to a plant asset account with a title such as Store Equipment 4 LESSON 18-1 page 535

CENTURY 21 ACCOUNTING © Thomson/South-Western 5 LESSON 18-1 RECORDING THE BUYING OF A PLANT ASSET 12 3 page 535 January 3, 20X1. Paid cash for a display case, $3, Check No Cash paid 4 2.Cost of the plant asset 1.Account title 4.Post

CENTURY 21 ACCOUNTING © Thomson/South-Western CALCULATING AND PAYING PROPERTY TAX For tax purposes, state & federal governments define two kinds of property – real & personal Land & anything attached to the land is called real property (sometimes referred to as real estate) All property not classified as real property is called personal property 6 LESSON 18-1 page 536

CENTURY 21 ACCOUNTING © Thomson/South-Western CALCULATING AND PAYING PROPERTY TAX – ASSESSED VALUES The value of an asset determined by tax authorities for the purpose of calculating taxes is called the assessed value Assessed value is usually based on the judgment of persons referred to as assessors The assessed value of an asset may not be the same as the value on the business’s or individual’s records The assessed value is assigned to an asset for tax purposes only Usually the assessed value is only a part of the true value of the asset 7 LESSON 18-1 page 536

CENTURY 21 ACCOUNTING © Thomson/South-Western 8 LESSON 18-1 CALCULATING AND PAYING PROPERTY TAX page 536 Annual Property Tax =Tax Rate× Assessed Value $720.00=1.2% × $60,  A governmental taxing unit determines a tax rate to use in calculating taxes  The tax rate is multiplied by an asset’s assessed value, not the value recorded on a business’s records

CENTURY 21 ACCOUNTING © Thomson/South-Western 9 LESSON 18-1 TERMS REVIEW real property personal property assessed value page 537