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FAR > 8. PPE, Non Monetary Exchange > Flashcards

8. PPE, Non Monetary Exchange Flashcards

1
Q

Plant assets 3 criteria?

A

Be currently used in operations
Have a useful life extending more than one yr beyond BS date
Have a physical substance
(If land held for investment, excluded)

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2
Q

Plant assets includes which 4 categories?

A

Plant and equipment (finite, useful life)
Land improvements ( finite, useful life)
Land (indefinite, no useful life - no depr.)
Natural resources

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3
Q

Can costs to get the plant asset to the site and ready be capitalized?

A

Yes

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4
Q

If the estimate time of benefits for costs for plant asset is only for current period, capitalized?

A

No, expensed. Capitalized if for the future periods too

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5
Q

If the expenditure is inmaterial for plant asset, capitalize?

A

No, expensed.
If material, determine if the expenditure makes the asset better, bigger or last longer (useful life extended beyond original estimate, more efficient, productive, quality improved). If yes, capitalize and depr.

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6
Q

Maintenance expenditure for plant asset, capitalized?

A

No

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7
Q

Self constructed asset: what’s included in capitalized costs?

A

Labor (also fringe benefits), material, overhead, interest (allowed only for self constructed assets).

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8
Q

How does excess value above MV for self constructed asset treated?

A

Loss. GAAP prohibits the recording of an asset above MV

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9
Q

Sum-of-the-year’s digit method

A

(N/SYD)(cost - salvage value)
(N-1/SYD)(cost - salvage value)
SYD = (N(N+1))/2

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10
Q

Declining balance method

A

Salvage value not used
Cost(2/N)
(Cost - yr1 depr)(2/N)

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11
Q

Natural resources. What items are capitalized?

A

Acquisition costs, exploration costs, development costs

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12
Q

How to compute depletion for the period?

A

(Depletion rate) x (# of units removed in the period)

Depletion rate = (natural resources acct bal. - residual value) / (total estimated units)

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13
Q

For exploration costs, what’s two methods?

A 
Successful method (BS valuation)
Full-costing method (Matching)
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14
Q

How to report natural resources on financial stmt?

A

Noncurrent
Land not classified as land
Mineral rights - intangible asset

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15
Q

Impairment determination and computation for assets for use

A

If BV > RC, then impaired (cost of maintenance accts reduce RC)
Impairment loss: CV (carrying value) - FV

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16
Q

Impairment loss for asset for use, reversal permitted?

A

No

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17
Q

Impairment loss determination and computation for asset for sale?

A

CV - FV less cost to sell

No depr.

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18
Q

Impairment loss for asset for sale, reversal permitted?

A

Yes

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19
Q

Assets held for sale, if the decision to dispose/actual disposal are at the same period, G/L recognized? If yes, where?

A

Yes. Income from continuing operations

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20
Q

Assets held for sale, if the decision of disposal precedes the actual disposal, what would be recorded and what would not?

A

Estimated loss recorded. Estimate gain not recorded.

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21
Q

Criteria to be classified as asset held for sale?

A

Must be actively pursued to sell. Sale is probable, within one yr

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22
Q

Asset held for sale, if criteria not met before Bs date, but met before issuance date, how to treat?

A

Treated as asset held for use

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23
Q

How to apply one step for impairment loss under IFRS?

A

RC < BV, impaired
RC is higher of FV less cost to sell or value in use (Present value of expected future cash flow/discounted CF)
Written down to RC

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24
Q

Estimated useful life and depr. reviewed how often under US and IFRS?

A

U: when events occur
I: annually

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25
Q

Component depr required under IFRS?

A

Yes, in some cases

26
Q

Revaluation to FV allowed, for both asset for use and asset for sale under US and IFRS?

A

U: No. Only asset for sale
I: Yes if FV can be measured reliably

27
Q

If commercial substance, how to treat gain and asset recognition?

A

Recognize in full and asset at FV

28
Q

No commercial substance: how to treat loss? When cash is paid, how to treat gain and asset recognition?

A

If loss is evident, recognize loss and asset at FV of the new asst.
If gain, gain is never recognized when cash paid. Asset at BV + cash pd

29
Q

No commercial substance + cash rcvd, gain and asset recognition?

A

Gain recognize in proportion to cash rcvd. Asset at FV - unrecognized portion.
If cash rcvd is over 25% of total FV rcvd+cash rcvd, recognize gain in full and asset at FV of new asset (If it’s over 25%, it’s considered cash sale, recognize the entire gain and asset recorded at FV).
If less than 25%, recognize gain @ the % of (cash rcvd/cash+FV rcvd). The new asset recognized at FV (of the new asset)-unrecognized portion of the gain

30
Q

Treatment of advertising revenue (gain) under US and IFRS?

A

U: based on the service rcvd or given, whichever is more reliable.
I: recognized in barter transaction - determined by non barter transaction for similar services that can be reliably measured with a different counter party

31
Q

Treatment of governmental grants under US and IFRS?

A

U: doesn’t address
I: recognize as governmental grant

32
Q

Treatment of donated asset under US and IFRS?

A

U: recognize at FV as expense. G/L recognized
I: not addressed

33
Q

Does asset held for sale get depreciated?

A

No

34
Q

What’s the recording amount for asset held for sale?

A

NRV

35
Q

When does Interest pmt get capitalized?

A

When asset is self constructed for the firm’s own use. Or when it is constructed for sale, but the must be large, discreet projects such as ships, real estate development.

36
Q

How to compute Average accumulated expenditures: weighted average and simple average?

A

W: Add all expenditures @ each Expenditure x (months remaining / 12).
S: (Beg expenditure + End exp)/2

37
Q

Compute Interest to be capitalized using specific method?

A
  1. Interest rate for construction loan x amount on construction loan
  2. Get average interest rate on non construction related loans
  3. Rate on 2 x (AAE - the amount of construction loan)
  4. # 1 + #3
38
Q

Compute interest to be capitalized using the weighted average method?

A
  1. Interest rate x each loan. Add all.
  2. (#1 / total of all loan amounts)
  3. # 2 x AAE
39
Q

Do specific method and average weighted method yield the same result when AAE is greater than all debts or all debts have the same interest rate?

A

Both yes

40
Q

Assets recorded at what amount at purchase?

A

At FV

41
Q

Assets purchased recorded at what amount on the consolidated financial stmt?

A

At cost

42
Q

How to compute weighted average of interest rate for loans?

A
  1. Add all result for loans @ face value x interest rate
  2. Add all face values
  3. # 1/#2
43
Q

Computing AAE during the construction: how to compute the AAE when expense is spent evenly through the yr?

A

The amount / 2

44
Q

Interest to be capitalized: when the face amount of construction loan is larger than AAE, how to compute?

A

Only AAE x interest rate

45
Q

Computing interest to be capitalized: when expense is cumulative and the interest rate on construction loan changes after the yr end?

A
  1. Total cumulative construction in progress balance / number of expenditures
  2. Interest rate x (how many months remaining with the rate/12)
  3. # 1 x #2
46
Q

Depreciatable amount: face amount of the note or total pmts that includes interest?

A

Face amount of the note

47
Q

Extraction cost and wages: do they get used in computing COGS?

A

Yes. Add to the depletion for the period

48
Q

In the case of involuntary conversion, how should the loss be computed?

A

Ins proceeds - (BV + any clean up costs)

49
Q

Restoration of the BV of a long lived asset permitted under IFRS. Which one: held for use or held for disposal?

A

Both

50
Q

Asset revaluation under IFRS: where to report G/L within the original amount and excess over the original amount?

A

Income stmt

OCI

51
Q

Asset held-for-sale: How is it valued?

A

Net realizable value

52
Q

How much interest can be capitalized?

A

Lessor of actual interest cost incurred during the period or avoidable interest.

53
Q

How to compute avoidable interest?

A

Multiply the interest rate by the average accumulated expenditures for the qualifying assets during the period.

54
Q

How to compute average accumulated expenditures?

A

The amount of expenditures on the construction cost during the period.

55
Q

How to compute interest rate on non-construction related loans when the loan amount is the same. When amount is different?

A

Same: Pick the mid point.
Different: (6%x30,000+5%x20,000)/(30,000+20,000)

56
Q

What happens to AAE when the construction goes on more than a year?

A

The end of year AAE + expenditures + capitalized interest

57
Q

When an asset is a part of a larger asset, what do you do for depreciation?

A

Shorter of useful life over the two assets.

58
Q

Formula for units of production method.

59
Q

What does commercial substance mean?

A

The cash flows from the new asset will be significantly different from those of old asset in terms of amount, timing, risk.
Or The use of the new asset to the firm is significantly different from that of the old asset.

60
Q

Nonmonetary exchange (commercial substance): Gain or loss based on which value? How do you record the FV of new asset?

A

Difference in the outgoing asset’s FV and BV. Incoming asset=FV. The new FV plus cash paid or less cash received.

61
Q

How do you determine the value of incoming asset?

A

The FV of consideration given in the exchange.

Unless the FV of the incoming asset is more objectively determinable.

62
Q

When no FV can be determined for both assets, what do you do?

A

No G/L.

The incoming asset is recorded at BV of the outgoing asset plus cash paid or less cash received.

FAR (15 decks)

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