ACC 300 Chapter 10 Flashcards
Step one of capitalization of interest
Determine which assests qualify for cap of interest
Step 2 on capitalization of interest
Determine the cap period
Step 3 of capitalization of interest
Identify the expenditures made during the cap period
Step 4 of capitalization of interest
Compute weighted average accumulated expenditures
Step 5 for capitalization of interest
Compute aviodable interest
Step 6 in capitalization of interest
Compute the actual interest cost inccurred
Step 7 of capitalization of interest
Determine the interest cost to be capitalized
Qualifying assets
Require a period of time to get ready for their intended use
Determine the cap period
Begins when expenditures for the assest have been made, necessary activities to get the asset ready for its intended use are in progress, interest cost of some kind is being incurred
Weighted average accumulated expenditures
Expenditures times the fraction of the period the expenditures occured
Compute avoidable interest
Identify the specific debt(construction loan) and all general debt then compute avoidable interst
Avoidable interest
(Specific debt interest rate x weighted average accumulated expenditures) + (general debt intetest rate x weighted average acc expenditures)
Determind the interest cost to be capitalized
Cap interst is limited to the lesser of avoidable or actual interest
Special assessments
Relatively permanent improvements such as pavements and drainage systems. Included in land
Land improvements
Improvements with limited life. Recorded separately and depreciated over their estimated lives
Cost of building
Expenditures related directly to acquisition or construction are capitalized as part of building.
Cost of equipment
Expenditures incurred in acquiring the equpimentnand preparing it for use.
Self constructed assets
Assign a portion of all overhead cost or assign no fixed overhead costs
Special issues related to interest cap
Interest cost incurred in purchase of land to be used for a building site are part of the buildings cost not the land, interest cost incurred on land being developed for lot sales are part of land, interest rev earned on funds borrowed to finance construction of addsts is not netted
Cash discount
Assume taken. Any discount not taken should be an expense
Deferred payment contracts
Accounted for at the present value of the consideration exchanged at the date transaction
Lump sum purchases
Cost allocated on the basis of relative fair valie of the assets required
Exchanges of nonmonentary assets
Does it have commerical substance. Compute book value of old, compute gain or loss, determine gain or loss recognized, prepare journal entry
Disposition
Giving away. Effects contribution expense and gain or loss recorded
Ordinary repairs
Should be expensed
Major repairs
Should be treated as an addition improvement or replacement
Commercial substance and loss realized
Recongize the entire loss. Recorded at fair value of new asset
Lacks commercial substance and loss realized
Record entire loss and record at fair value of new asset
Commercial substance and gain realized
Recognize the entire gain and record at fair value of new asset
Lacks commercial substance and gain and no cash exhanged or cash paid
Recognize no gain and record fair value of new asset minus gain deferred
Lacks commercial substance and gain and cash is recieve
Recognize portion of gain and record at fair value of new asset minus gain deferred
25% rule
Cash recieved/(cash recieved + fair value of recieved asset)
Portion of gain recorded when boot is recieved
Realized gain x (cash recieved/(cash recieved+fv of recieved asset))
