10 PP&E Flashcards
What depreciation method does not use salvage value?
Double-declining balance
List the non accelerated methods of depreciation.
Straight-line method
Service hours method
Units of output method
Define “book value.”
Original cost less accumulated depreciation to date
What type of allocation is depreciation considered?
Systematic and rational allocation of capitalized asset cost to time periods
How do we calculate the annual straight-line depreciation amount of an asset?
(Cost − Salvage value) / Useful life
Define “depletion.”
Refers to the allocation of the cost of the natural resource to inventory
What costs are included in the full costing method for exploration costs?
All costs of exploring for the resource are capitalized to the natural resources account.
What costs are included in the successful efforts method for exploration costs?
Only the costs of successful exploration efforts are capitalized to the natural resources account.
List the type of costs capitalized for natural resources.
Acquisition
Exploration
Development
What interest rates should be used to determine capitalized interest?
The average interest rate during period or the specific interest rate applicable to construction debt
List the conditions that must exist to capitalize interest.
Qualifying expenditures have been made.
Construction is proceeding.
Interest cost is being incurred.
List the components of capitalized costs of self-constructed assets.
Labor
Material
Overhead
Interest cost
What is the general rule for capitalizing expenditures?
Capitalize all expenditures necessary to bring the plant asset to its intended condition and location.
List the general rules on costs to capitalize.
Cash equivalent price
Get-ready costs
What are the two allowed methods to compute total interest to be capitalized?
Weighted average method
Specific method
What is the general rule on when to capitalize post acquisition expenditures?
Capitalize the expenditures if the asset becomes more productive or if the expenditure extend the asset’s life.
If weighted average accumulated expenditures (WAAE) < total interest-bearing debt, what is interest expense for the period?
The difference between total interest cost and the amount of interest capitalized
If weighted average accumulated expenditures (WAAE) > total interest-bearing debt, what is the interest expense for the period?
All interest cost is capitalized, and there is no reported interest expense for the period.
List the two-step process involved in computing capitalized interest.
Compute the weighted average accumulated expenditure.
Apply the appropriate interest rate(s).
List some examples of natural resources.
Gravel pits
Coal mines
Tracts of timber land
Oil wells, and others
When are unpaid construction input costs included in weighted average accumulated expenditures (WAAE)?
Not until cash is paid
List the requirements for inclusion in plant assets.
Currently used in operations
Have a useful life extending beyond one year
Have physical substance
Define “get ready costs.”
All costs incurred to get the asset on the company’s premises and ready for use
How do we calculate the rate used in double declining balance?
Straight-line rate: Number of years divided into 1 (i.e., if 5 years, 1 / 5 = 20%).
Twice the straight-line rate: 20% × 2 = 40%
