This week we are going to discuss assets with long lives. They are called property, plant, and equipment (PPE), fixed assets, or plant assets. Xerxes Inc. purchased a new piece of equipment, paying the dealer $341,000. By the time the equipment was installed, it was listed on Xerxes' books for $417,000 cost.

Why is that? How could the cost of the equipment on the books go from $341,000 to $417,000?

The company accountants have to decide which depreciation method they want to use for this asset. Why can't they just write the entire amount off as an expense in the year the asset was purchased? Why is that not allowed by GAAP? It would be a lot simpler, right? Discuss this.

The company accountant calculates depreciation on the new machine, and Year 1 depreciation is determined to be $51,000. Unfortunately, the accountant does not input the information correctly, and the depreciation entry for this new machine is not recorded in Year 1. She realizes her omission in April of the next year (Year 2) after the annual financial statements for the previous year (Year 1) have been issued. What impact has the omission had on the financial statements? Discuss this. What should she do? (Note: Quitting her job and moving to Canada is NOT the answer.)