Question

When plant assets are purchased in a group, each asset is recognized in the respective plant asset account at its fair market value on the acquisition date. True or False?

Answer 1

The statement is true; when plant assets are bought as a group, they are indeed recognized individually at their fair market value on the acquisition date, according to proper accounting practices such as GAAP or IFRS.

Step-by-step explanation:

When plant assets are purchased in a group, it is true that each asset should be recognized in the respective plant asset account at its fair market value on the acquisition date. This is an accounting practice called allocation of purchase price or cost allocation. The total cost of the group purchase is distributed among the individual assets based on their relative fair market values. This ensures that the asset values are recorded in a manner that reflects their potential to generate economic benefits for the entity. This is in accordance with the Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), depending on the jurisdiction of the entity.