Chap009-PPT-03032023-035024pm (1).pptx

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Chapter 9
Plant and
Intangible
Assets

9-2
Plant Assets
 Plant assets represent a bundle of future services
and, thus, can be thought of as long-term prepaid
expenses.
 Plant and equipment items are classified into three
groups:
1. Tangible plant assets have physical
substance. This category is further divided into
two classifications:
a. Property subject to depreciation such as
buildings and equipment.

9-3
Plant Assets (cont.)
b. Land, which is not subject to depreciation
due to its unlimited term of existence and
utility that does not decline over time.
2. Intangible assets describe assets that are used
in the operation of the business but have no
physical qualities and are noncurrent. Examples
include patents, copyrights, trademarks,
franchises, and goodwill.
3. Natural resources include oil, minerals, and
timber.

9-4
Accountable Events
For all categories of plant assets, there are three
primary accountable events:
1. Acquisition
2. Allocation of the acquisition cost to expense (with
the exception of land) over the asset’s useful life
3. Sale or disposal

9-5
Acquisitions of Plant Assets
 The cost of a plant asset includes all expenditures
that are reasonable and necessary for getting the
asset to the desired location and ready for use. In
addition to the basic cost of the asset, other
incidental costs may be included in the cost
assigned to a plant asset. These include:
◦ Sales taxes on the purchase price
◦ Delivery costs
◦ Installation costs

9-6
Acquisition Cost: Example 1
 Only reasonable and necessary costs should be
included. Assume, for example, that a machine is
dropped and damaged while it is being unloaded.
The cost of repairing this damage should be
recognized as an expense of the current period,
not added to the cost of the machine. Although it is
necessary to repair the machine, it was not
necessary to drop it—and that’s what brought
about the need for the repairs.

9-7
Acquisition Cost: Example 2
 Companies often purchase plant assets on an
installment plan or by issuing a note payable.
Interest charges after the asset is ready for use are
recorded as interest expense, not as part of the
cost of the asset. But if a company constructs a
plant asset for its own use, the interest charges
during the construction period are considered part
of the asset’s cost.

9-8
Determining Cost: An Example
 A factory in Mississippi orders a machine from a
Colorado tool manufacturer at a list price of
$10,000. Payment will be made in 48 monthly
installments of $250, which include $2,000 in
interest charges. Sales taxes of $600 must be paid,
as well as freight charges of $1,350. Installation
and other set-up costs amount to $500. The cost of
this machine to be established in the Machinery
account of the purchasing company is computed as
follows:

9-9
Land
 When land is purchased, various incidental costs
may be incurred in addition to the purchase price.
These additional costs may include:
◦ Commissions to real estate brokers
◦ Escrow fees
◦ Legal fees for examining and insuring the title
◦ Delinquent taxes paid by the purchaser
◦ Fees for surveying, draining, clearing, and
grading the property
 All these expenditures become part of the cost of
the land.

9-10
Land (cont.)
 Sometimes land purchased as a building site has a
building on it that is not suitable for the buyer’s use.
 In this case, the only useful asset being acquired is
the land.
 Therefore, the entire purchase price is charged to
the Land account, as well as the costs of tearing
down and removing the unusable building.

9-11
Land Improvements
 Land improvements have limited lives separate
from the land and are subject to depreciation. For
this reason, they should be recorded in a separate
account entitled Land Improvements.
 Examples include:
◦ Driveways
◦ Fences
◦ Parking lots
◦ Landscaping
◦ Sprinkler systems

9-12
Buildings
 Buildings are sometimes purchased with the
intention of remodeling them prior to placing them
in use.
 Costs incurred under these circumstances are
charged to the Buildings account.
 After the building has been placed in use, however,
ordinary repairs are considered to be maintenance
expense when incurred.

9-13
Equipment
 When equipment is purchased, all of the sales
taxes, delivery costs, and costs of getting the
equipment in good operating order are treated as
part of the cost of the equipment.
 Once the equipment has been placed in operation,
maintenance costs (including interest, insurance,
and property taxes) are treated as expenses of the
current period.

9-14
Allocation of a Lump-Sum Purchase
 Several different types of plant assets may be
purchased at one time.
 Separate asset accounts are maintained for each
type of plant asset, such as land, buildings, and
equipment.
 When land and buildings (and perhaps other
assets) are purchased for a lump sum, the
purchase price must be allocated among the types
of assets acquired.
 An appraisal may be needed for this purpose.

9-15
Lump-Sum Purchase: Example
Assume, for example, that Exercise-for-Health, Inc.,
purchases a complete fitness center from Golden
Health Spas. Exercise-for-Health purchases the
entire facility at a reduced price of $800,000. The
allocation of this cost on the basis of an appraisal is
illustrated as follows:

9-16
Lump-Sum Purchase: Example
(cont.)
Assuming that Exercise-for-Health purchased this
facility for cash, the journal entry to record this
acquisition would be as follows:

9-17
Your Turn: You as the New Facility
Manager

9-18
Capital and Revenue Expenditures
 Capital Expenditures
◦ Recorded in asset accounts.
◦ Any material expenditure that will benefit several
accounting periods.
 Revenue Expenditures
◦ Recorded in expense accounts.
◦ Expenditure that will benefit only the current
period or that is not material in amount.

9-19
The allocation of the cost of a tangible plant asset to
expense in the periods in which services are received
from the asset.
The Depreciation Process

9-20
Depreciation Terms
 Book Value
◦ Cost – Accumulated Depreciation
 Accumulated Depreciation
◦ Contra-asset
◦ Represents the portion of an asset’s cost that
has already been allocated to expense
 Causes of Depreciation
◦ Physical deterioration
◦ Obsolescence

9-21
Methods of Computing Depreciation
 Generally accepted accounting principles require
only that a depreciation method result in a rational
and systematic allocation of cost over the asset’s
useful life.
 The straight-line method is the most commonly
used depreciation method for financial reporting
purposes.
◦ The straight-line method allocates an equal
portion of depreciation expense to each period of
the asset’s expected useful life.
◦ Most of the other depreciation methods are
various forms of accelerated depreciation.

9-22
Straight-Line Vs. Accelerated
Over the entire life of the asset, however, both the
straight-line method and accelerated methods
recognize the same total amount of depreciation.

9-23
On January 2, S&G Wholesale Grocery acquires a new
delivery truck. The truck cost $17,000, has an
estimated residual value of $2,000, and an estimated
useful life of five years.
Compute annual depreciation using the straight-line
method.
Straight-Line Depreciation: Example

9-24
S&G will record $3,000 depreciation each year for five
years. Total depreciation over the estimated useful life
of the equipment is:
Straight-Line Depreciation: Example
(cont.)

9-25
Depreciation for Fractional Periods
 If an asset is acquired during an accounting
period, depreciation can be estimated by:
◦ Rounding the depreciation computation to
the nearest whole month
◦ Recording one-half year’s depreciation on all
assets acquired during the year (half-year
convention)

9-26
Half-Year Convention
Using the half-year convention, assume that
an insurance company purchases hundreds of
desktop computers throughout the current year
at a total cost of $600,000. The company
depreciates these computers by the straight-
line method, assuming a three-year life and no
residual value.
Depreciation = ($600,000 − $0) ÷ 3
= $200,000 for a full year
Depreciation = $200,000 × 1
/2 = $100,000

9-27
Depreciation in the early years of an asset’s
estimated useful life is higher than in later
years.
The double-declining-balance depreciation
rate is 200 percent of the straight-line
depreciation rate of (1 ÷ Useful Life).
Declining-Balance Method

9-28
Declining-Balance Method: Example
Total depreciation over the estimated useful life of
an asset is the same using either the straight-line
method or the declining-balance method.

9-29
Which Depreciation Methods Do
Most Businesses Use?
 The majority of publicly owned companies use
straight-line depreciation in their financial
statements.
 Accounting principles and income tax laws both
permit companies to use different depreciation
methods in their financial statements and their
income tax returns.
 Many companies use straight-line depreciation in
their financial statements and accelerated methods
in their income tax returns.

9-30
Financial Statement Disclosures:
Estimates of Useful Life and Residual
Value
 Companies must disclose the methods used to
depreciate plant assets in the notes to financial
statements.
 These estimates affect the amount of net income
reported each period.
 Auditors determine if management’s estimates
are reasonable under the circumstances.
 Auditors also monitor consistent usage of
depreciation methods.

9-31
Financial Statement Disclosures: The
Principle of Consistency
 Principle of Consistency requires consistent
application of accounting methods.
 This is a fundamental concept underlying generally
accepted accounting principles.
 This means that a company does not change from
year to year the method used in computing the
depreciation expense for a given plant asset.
◦ Companies can use different methods for different
assets.
◦ Companies can also use different methods for
financial statements and income tax returns.

9-32
Revision of Estimated Useful Lives
Q: What should be done if, after a few years of using
a plant asset, management decides that the asset
actually is going to last for a longer or shorter period
than was originally estimated?
A: When this situation arises, a revised estimate of
useful life should be made and the periodic
depreciation expense decreased or increased
accordingly.

9-33
Revising Depreciation Rates:
Example
Assume that a company acquires a $10,000
asset estimated to have a five-year useful life
and no residual value. At the beginning of the
fourth year, management decides that the
asset will last for five more years. The revised
estimate of useful life is, therefore, a total of
eight years. Calculate depreciation expense
for the fourth year and for each of the
remaining years.

9-34
Book Value at
Date of Change
Salvage Value at
Date of Change
Remaining useful life at date of change
–
Revising Depreciation Rates:
Example (cont.)
Asset cost 10,000
$
Accumulated depreciation
($2,000 per year × 3 years) 6,000
Remaining book value 4,000
$
Divide by remaining life ÷ 5 years
Revised annual depreciation 800
$

9-35
Impairment of Plant Assets
 If the carrying amount of an asset cannot be
recovered through future use or sale, the asset
should be written down to its fair value and an
impairment loss recognized.
◦ For example, a computer manufacturer may
have paid a high price to acquire specialized
production equipment. If new technology renders
the equipment obsolete, however, it may become
apparent that the equipment is worth less than
the amount it is carried in the accounting records.
◦ In this case, the asset should be written down to
its fair value and an impairment loss recognized.

9-36
Case in Point

9-37
Units-of-Output Depreciation
Method
 Under the units-of-output method, depreciation is
based on some measure of output rather than on
the passage of time.
 When depreciation is based on units of output,
more depreciation is recognized in the periods in
which the assets are most heavily used.

9-38
Units-of-Output: Example
Consider Marpole Company’s delivery truck, which cost
$35,000 and has an estimated salvage value of $5,000.
Assume that Marpole’s management plans to retire this truck
after it has been driven 60,000 miles. The depreciation rate per
mile of operation is 50 cents, computed as follows.

9-39
Units-of-Output: Example (cont.)
At the end of each year, the amount of depreciation to be
recorded is determined by multiplying the 50-cent rate by the
number of miles the truck was actually driven during the year.
After the truck has gone 60,000 miles, it is fully depreciated,
and the depreciation process is stopped. For example if the
truck is driven 17,000 miles in a year, $8,500 depreciation
expense is recognized (17,000 miles × $0.50 = $8,500).
KEY POINT
This method provides an excellent matching of expense with
revenue when the total units of output can be determined with
reasonable accuracy. This method is used only for assets such
as vehicles and certain types of machinery whose use can be
measured in miles, machine hours, or some other measure of
use.

9-40
MACRS
 Most businesses use MACRS (Modified
Accelerated Cost Recovery System) in their federal
income tax returns.
 Some small businesses also use this method in
their financial statements, so they do not have to
compute depreciation in several different ways.
KEY POINT
For publicly traded companies, the use of MACRS in financial
statements is usually not considered to be in conformity with
generally accepted accounting principles.

9-41
Sum-of-the-Years’ Digits Method
 Sum-of-the-years’ digits, or SYD, is a form of
accelerated depreciation that generally produces
results that lie between the double-declining-
balance and 150 percent declining-balance
methods.
 SYD is rarely used in today’s business world.
 Because of its complexity, it is even less frequently
used in small businesses. SYD is seldom used for
income tax purposes.
 For these reasons, we defer coverage of the
mechanics of this method to later accounting
courses.

9-42
Disposal of Plant and Equipment
 Upon the disposal or retirement of a
depreciable asset, the cost of the property is
removed from the asset account, and the
accumulated depreciation is removed from the
related contra-asset account.

9-43
Assume that a machine costing $10,000 had accumulated
depreciation of $8,000 and a book value of $2,000 at the time
it was sold for $3,000 cash. The journal entry to record this
disposal is as follows:
Disposal of Plant and Equipment:
Price above Book Value

9-44
Assume that a machine costing $10,000 had accumulated
depreciation of $8,000 and a book value of $2,000 at the time
it was sold for $500 cash. The journal entry to record this
disposal is as follows:
Disposal of Plant and Equipment:
Price below Book Value

9-45
Assume that Rancho Landscape exchanges an
old truck for a new truck costing $25,000. They
received $3,500 trade-in allowance on the old
truck, which had a book value of $2,000.
Rancho pays the remaining $21,500 cost of the
new truck in cash. The journal entry to record
this transaction is shown on the next slide.
Trading in Used Assets for New
Ones

9-46
Cost of old truck 10,000
$
Accumulated depreciation: Vehicles 8,000
Book value of old truck 2,000
$
Fair market value of old truck 3,500
Gain on disposal of old truck 1,500
$
Trading in Used Assets for New
Ones: Example

9-47
Under international accounting standards,
companies have an option to follow a revaluation
process rather than continuing to use historical
cost throughout the asset’s useful life.
International Financial Reporting
Standards
This revaluation alternative requires that an
asset’s fair value can be reliably measured and it
must be applied to an entire class of plant assets.
If an asset’s carrying amount is increased as a
result of a revaluation, the increase is recorded in
other comprehensive income and accumulated
equity.

9-48
Intangible Assets: Characteristics
 Intangible assets are long-term assets with no
physical substance.
 They are used in the operation of the business to
generate income.
 The valuation basis is cost.
 Common examples include:
◦ Patents
◦ Trademarks
◦ Goodwill

9-49
Operating Expenses Vs. Intangible
Assets
 For an expenditure to qualify as an intangible
asset, there must be reasonable evidence of future
benefits.
 Many expenditures offer some prospects of
yielding benefits in subsequent years, but the
existence and life span of these benefits are so
uncertain that most companies treat these
expenditures as operating expenses.

9-50
Amortization
 The term amortization describes the systematic
write-off to expense of the cost of an intangible
asset over its useful life.
 Amortization of an intangible asset is essentially
the same as depreciation for a tangible asset.
 The usual accounting entry for amortization
consists of a debit to Amortization Expense and a
credit to the intangible asset account.

9-51
Amortization (cont.)
 Although it is difficult to estimate the useful life of
an intangible such as a trademark, like most plant
assets it is probable that such an asset will not
contribute to future earnings on a permanent basis.
 The cost of the intangible asset should, therefore,
be deducted from revenue during the years in
which it may be expected to aid in producing
revenue.
 The straight-line method normally is used for
amortizing intangible assets.

9-52
Goodwill
Goodwill represents an amount that a company has
paid to acquire certain favorable intangible attributes
as part of an acquisition of another company. Positive
attributes often included in goodwill are:
◦ Favorable reputation
◦ Positive market share
◦ Positive advertising image
◦ Reputation for high quality and loyal employees
◦ Superior management
◦ Manufacturing and other operating efficiency

9-53
International Case in Point

9-54
Patents
 A patent is an exclusive right granted by the federal
government for manufacture, use, and sale of a
particular product.
 The purpose of this exclusive grant is to encourage
the invention of new products and processes.
 When a company acquires a patent by purchase
from the inventor or other holder, the purchase
price is recorded in an intangible asset account
Patents.
 Patents are granted for 20 years, and the period of
amortization should not exceed that period.
However, if the patent is likely to lose its usefulness
in less than 20 years, amortization is based on the
shorter estimated useful life.

9-55
Patent: Example
Assume that a patent is purchased from the inventor at a cost
of $100,000 after five years of the legal life have expired. The
remaining legal life is, therefore, 15 years. But if the estimated
useful life is only eight years, amortization is based on this
shorter period. The entry to record the annual amortization
expense would be as follows.

9-56
Trademarks and Brand Names
 Coca-Cola’s famous name, usually printed in a
distinctive typeface, is a classic example of a
trademark known around the world.
 A trademark is a name, symbol, or design that
identifies a product or group of products.
 A permanent exclusive right to use a trademark,
brand name, or commercial symbol may be
obtained by registering it with the federal
government.

9-57
Trademarks and Brand Names
(cont.)
 The costs of developing a trademark or brand
name often consist of advertising campaigns,
which should be treated as expenses when
incurred.
KEY POINT
If a trademark or brand name is purchased, however, the cost
may be substantial. Such cost is capitalized and amortized to
expense over the time period the trademark or brand name is
expected to be used. If the use of the trademark is discontinued
or its contribution to earnings becomes doubtful, any
unamortized cost is written off immediately.

9-58
Franchises
 A franchise is a right granted by a company or a
governmental unit to conduct a certain type of
business in a specific geographical area.
 An example of a franchise is the right to operate a
McDonald’s restaurant in a specific geographic
region.
 The cost of franchises varies greatly and often is
quite substantial.

9-59
Franchises (cont.)
 When the cost of a franchise is small, it may be
charged immediately to expense or amortized over
a short period such as five years.
 When the cost is material, amortization is based on
the life of the franchise (if defined by the franchise
agreement); the amortization period, however,
should not exceed the period the franchise is
expected to generate revenue.

9-60
Copyrights
 A copyright is an exclusive right granted by the
federal government to protect the production and
sale of literary or artistic materials for the life of the
creator plus 70 years.
 The cost of obtaining a copyright may be minor and
therefore is chargeable to expense when paid.
 Only when a copyright is purchased from an
existing owner will the expenditure be material
enough to warrant its being capitalized and spread
over the useful life.

9-61
Research and Development (R&D)
Costs
 Companies spend billions of dollars each year on
research and development of new products.
 The annual research and development
expenditures of some companies often exceed $1
billion and account for a substantial percentage of
their total costs and expenses.
KEY POINT
The Financial Accounting Standards Board standardized
accounting for R&D when it ruled that as a general rule
research and development expenditures are required to be
charged to expense when incurred.

9-62
Your Turn: You as a Financial
Analyst

9-63
Accounting for Natural Resources
 The distinguishing characteristic of natural
resources is that they are physically removed from
their natural environment and converted into
inventory.
 Examples include:
◦ Mining properties
◦ Oil
◦ Gas reserves
◦ Tracts of timber

9-64
Natural Resource: Example
 Theoretically, a coal mine might be regarded as an
underground inventory of coal; however, such an
inventory is certainly not a current asset.
 In the balance sheet, mining property and other
natural resources are classified as property, plant,
and equipment.
 Once the coal is removed from the ground,
however, this coal does represent inventory.

9-65
Depletion of Natural Resources
 A mine or an oil reserve does not depreciate, but it
is gradually depleted as the natural resource is
removed from the ground.
 Once all of the coal has been removed from a coal
mine, for example, the mine is fully depleted and
will be abandoned, sold, or redeveloped for an
alternative use.

9-66
Depletion: Example
Rainbow Minerals pays $48 million to acquire the Red Valley
Mine, which is believed to contain 5 million tons of coal. The
residual value of the mine after all of the coal is removed is
estimated to be $8 million. The depletion that will occur over
the life of the mine is the original cost minus the residual value,
or $40 million. This depletion will occur at the rate of $8 per ton
($40 million ÷ 5 million tons) as the coal is removed from the
mine. If we assume that 2 million tons are mined during the first
year of operations, the entry to record the depletion of the mine
would be as follows.

9-67
Depletion: Example (cont.)
 As the coal is sold, this cost is transferred from the
Inventory account to the Cost of Goods Sold
account.
 Accumulated Depletion is a contra-asset account
similar to the Accumulated Depreciation account; it
represents the portion of the mine that has been
used up (depleted) to date.
 In Rainbow Minerals’s balance sheet, the Red
Valley Mine now appears as follows.

9-68
Plant Transactions and the
Statement of Cash Flows
 Cash flows relating to acquisitions and disposals of
plant assets appear in the statement of cash flows,
classified as investing activities.
 Depreciation and amortization expense both
reduce net income, but they have no effect on cash
flows. As a result, both tend to make net income
less than the net cash flows from operating
activities.
 Likewise, the write-down of impaired assets is
another example of a noncash charge or expense
against income having no immediate effect on cash
flows.

9-69
Noncash Investing Activities
 Not all purchases and sales of plant assets result in
cash payments or cash receipts during the current
accounting period.
 For example, a company may finance the purchase
of plant assets by issuing notes payable, or it may
sell plant assets in exchange for notes receivable.
 The noncash aspects of investing and financing
activities are summarized in a special schedule
that accompanies a statement of cash flows.

9-70
Ethics, Fraud, & Corporate Governance
A major instance of fraudulent financial reporting in U.S.
history was primarily due to improper capitalization of
operating expenditures. WorldCom Inc. (WorldCom) from as
early as 1999 through the first quarter of 2002 overstated its
reported income by approximately $11 billion, including
approximately $7 billion of ordinary operating expenses that
were improperly capitalized. The revelation of the fraud led to
WorldCom’s filing for protection from its creditors under the
provisions of the U.S. Bankruptcy Code. Although the fraud at
Enron had prompted congressional interest in auditing,
financial reporting, and corporate governance, by the spring of
2002 congressional efforts to draft a law in response to the
Enron fraud had stalled due to disagreements between the two
houses of Congress. The fraud at WorldCom broke this
congressional logjam and resulted in the passage of the
Sarbanes-Oxley Act less than two months after the revelation
of the WorldCom fraud.

9-71
Learning Objective Summary LO9-1
LO9-1: Determine the cost of plant assets. Plant assets
are long-lived assets acquired for use in the business and not
for resale to customers. The matching principle requires that
we include in the plant and equipment accounts those costs
that will provide services over a period of years. During these
years, the use of the plant assets contributes to the earning of
revenue. The cost of a plant asset includes all expenditures
reasonable and necessary in acquiring the asset and placing
it in a position and condition for use in the operations of the
business.

9-72
LO9-2: Distinguish between capital expenditures and
revenue expenditures. Capital expenditures include all
material expenditures that will benefit several accounting
periods. These expenditures are charged to asset accounts
(capitalized) and are recognized as expense in future periods.
Revenue expenditures are charged directly to expense
accounts because either (1) there is no objective evidence of
future benefits or (2) the amounts are immaterial.

9-73
LO9-3: Compute depreciation by the straight-line and
declining-balance methods. Straight-line depreciation
assigns an equal portion of an asset’s cost to expense in each
period of the asset’s life. Declining-balance depreciation is an
accelerated method. Each year, a fixed (and relatively high)
depreciation rate is applied to the remaining book value of the
asset. There are several variations of declining-balance
depreciation.

9-74
LO9-4: Account for depreciation using methods other
than straight-line or declining-balance. Most companies
that prepare financial statements in conformity with generally
accepted accounting principles use the straight-line method of
depreciation. Other accepted methods include the units-of-
output method, sum-of-the-years’ digits, and, in rare
circumstances, decelerated depreciation methods.

9-75
 LO9-5: Account for the disposal of plant assets. When
plant assets are disposed of, depreciation is first recorded to
the date of disposal. The cost is then removed from the
asset account and the total depreciation recognized to date
is removed from the Accumulated Depreciation account. The
sale of a plant asset at a price above or below book value
results in a gain or loss that is reported in the income
statement.
 Because different depreciation methods are used for income
tax purposes, the gain or loss reported in income tax returns
may differ from that shown in the income statement. The
gain or loss shown in the financial statement is recorded in
the company’s general ledger accounts.

9-76
 LO9-6: Explain the nature of intangible assets,
including goodwill. Intangible assets are assets owned by
the business that have no physical substance, are
noncurrent, and are used in business operations. Examples
include trademarks and patents.
 Among the most interesting intangible assets is goodwill.
Goodwill is the expected future earnings in excess of a
normal return on net identifiable assets. It stems from such
factors as a good reputation, loyal customers, and superior
management. Any business that earns significantly more
than a normal rate of return actually has goodwill. But
goodwill is recorded in the accounts only if it is purchased
by acquiring another business at a price higher than the fair
market value of its net identifiable assets.

9-77
LO9-7: Account for the depletion of natural resources.
Natural resources, sometimes called wasting assets, include
mines, oil fields, and standing timber. Their cost is converted
into inventory as the resource is mined, pumped, or cut. This
allocation of the cost of a natural resource to inventories is
called depletion. The depletion rate per unit extracted equals
the cost of the resource (less residual value) divided by the
estimated number of units it contains.

9-78
LO9-8: Explain the cash effects of transactions involving
plant assets. Depreciation is a noncash expense; cash
expenditures for the acquisition of plant assets are
independent of the amount of depreciation for the period. Cash
payments to acquire plant assets and cash receipts from
disposals are classified in the statement of cash flows as
investing activities.
Write-downs of plant assets also are noncash charges, which
do not involve cash payments.

9-79
End of Chapter 9

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