Video instructions and help with filling out and completing What Form 4797 Expenditures

Instructions and Help about What Form 4797 Expenditures

In this video we're gonna talk about the cost that are capitalized when a firm acquires property plant and equipment so you might be thinking hey whatever the cost is of a building or of a piece of land or equipment let's say it's eight hundred dollars for a piece of equipment that cost is what's going to become the assets value when we record that piece of equipment on the balance sheet and you'd be right but you can't neglect other costs for example let's say there was 50 dollars in shipping and handling to get this machine to your firm then the amount that you're gonna initially record on the balance sheet is actually going to be 850 dollars so you don't just include the purchase price that's certainly part of it but you also include the shipping and handling and there are a lot of different types of costs that can be involved with property plant and equipment when you acquire PP&E and so I just want to give you an overview of those costs and show you how it would affect your calculations so let's start with property with a piece of land and we're assuming here that this isn't land you just buy for speculative purposes and and have no intention of building a warehouse or something there if that were the case then the land would be accounted for as an investment a long-term investment for the firm we're talking about land where you intend to build a warehouse or a manufacturing plant or something so the purchase price the amount you pay for the land is definitely going to be included in the lands initial asset value but also any cost to prepare the land for use and what it means when I say when I talk about preparing the land for use is let's say there's an old building right there might be an old building there that you have to remove in order to build a new building right or you might have to do grading or clearing of the land and and so forth you might you're gonna incur some costs to be able to build this building so any cost preparing that land getting it ready for that new building those are going to be part of that assets initial value of this lands value if you assume the mortgage of who the previous owner if they had a mortgage and you assumed that mortgage that's also going to increase the capitalized value of the land that's gonna get added to the cost and then any closing costs associated with it with the real estate closing those are going to be part of the assets value and any permanent import ments to the land so let's say that you built a statue on this land for a statue of the CEO of your company okay well that's a permanent improvement so whatever the cost of that statue is it's gonna be included along with the purchase price and all these other items in the initial value of the land now if you have any kind of proceeds that you get from Salvage so let's say you're tearing when you're tearing down this old building that you sell some of those materials to a scrapyard well that's actually going to reduce the capitalized cost the capitalized cost of the land so that would actually be deducted from the value so I just want to give you an example to make a little easier to understand let's say that you pay four hundred out four hundred thousand dollars for a piece of land and you're wondering how much do I put on the balance sheet for well certainly the four hundred thousand dollar purchase price is going to be part of that but let's say there are some other things going on let's say you had to remove an old building in order to build a new building well that's two hundred and fifty thousand dollars that it cost you to get the wrecking ball out there to get rid of that old building so that's gonna be part of the assets value but then when they come out and they destroy the old building you get some proceeds you sell some of that their material to the scrapyard for eighteen thousand dollars so that's gonna be subtracted from the value it's gonna reduce the capitalized value and then you have to do grading and clearing of the land to get it ready for a new building that costs forty thousand dollars so all of these costs are gonna be added together with the exception of the proceeds which is actually subtracted and the total capitalized cost is six hundred and seventy two thousand dollars and again remember that capitalized means that this is going to be the assets value we talk about something being capitalized you talk about making it an asset and so this is going to be the initial asset value of that land on the balance sheet alright so all these things here affect that lands balance you value now we also we're going to talk about buildings right so we talked about land and now let's talk about a building let's pretend you're building your own building well the construction costs obviously those are going to be part of the buildings capitalized value but also an permits or fees if you've ever tried to build a building you know that you're gonna run into a lot of permits and a lot of fees in order to get that building where you can you can legally use it right so your government fees and so forth to build and all those fees are going to be part of the capitalized cost of the building and also any professional fees let's say for example that you hire an architect in order to design the building that is