Ch 9.1 PPE

Question 2

3 charcteristics of PPE

Answer 2

1) They are tangible long lived resources under company control
2) companies use assets to produce g/s or OTHER revenue generation
3) assets are not sold to customers

Question 3

main diff between current assets and nca

Answer 3

provide economic beefits over many years

Question 4

synonynm for nca

Answer 4

fixed assets

Question 5

at what value do companies record PPE on financial statmeents?

Answer 5

at cost!

Question 6

what does cost of ppe include

Answer 6

1) the purchase price (+ certain non-refundable taxes and duties - discounts or rebates)
2) expenses needed to bring asset to location and get it ready for use
3) estimates of the cost of any future expenses related to dismantling, removing, or restoring asset at END of useful life

Question 7

which costs do companies include in PPE

Answer 7

the costs that will beenfit only the current periods “operating expenditures”

Question 8

In general, companies expense costs that will benefit only the current period. Such costs are operating expenditures. Companies capitalize (include) costs thatwill benefit future periods in a non-current asset account relating to property, plant, or equipment. These are capital expenditures.

Answer 8

In general, companies expense costs that will benefit only the current period. Such costs are operating expenditures. Companies capitalize (include) costs thatwill benefit future periods in a non-current asset account relating to property, plant, or equipment. These are capital expenditures.

Question 9

operating expenditures

Answer 9

expenses that benefit only this period,

they are chraged against revenues as an expense acc

Question 10

capital expenditures

Answer 10

expenses that benefit future periods, recorded as long lived assets

Question 11

what are asset retirement costs

Answer 11

costs to ddismantle, remove, or restore a PPE at end of useful life

Question 12

what do you do with asset retirmenet costs

Answer 12

you add them to the cost of the asset

Question 13

what are 4 classificaitons of PPE

Answer 13

1) LAND
2) LAND IMPROVEMENTS
3) PROPERTY
4) EQUIPMENT

Question 14

what is land

Answer 14

building site

Question 15

what is land improvements

Answer 15

driveways parking lots fences and udnerground sprinklers

Question 16

what is buidlings

Answer 16

stores, offices, plants, warehusoses

Question 17

what is equioment

Answer 17

vehicles, computers, furnityure, machienry

Question 18

what is included in the cost of land

Answer 18

all costs incurred to get the land ready for use
1) cash price
2) closing costs (survey, title search, legal)
3) cost for prepping land (Clearig, draining, excavvaating, grading)
4) Cost to demolish and remove things LESS proceeds from salvaged materials

Question 19

Companies will treat recurring expenditures incurred after purchasing the land as operating expenses because they only benefit the current year.

such as the annual property taxes.

Answer 19

!!!

Question 20

What is journal entry to record purchase of Land

Answer 20

Dr Land
Cr Cash

Question 21

What are land improvements

Answer 21

structrual additions made to a property

q

Question 22

do land improvements decline in value over time

Answer 22

yes! they need maintenacne and one day eventual replacement

Question 23

Some people confuse the cost to get land ready for its intended use with land improvements. Land improvements usually occurafter the land is acquired, and wecan distinguish these improvementsfrom the land itself.

Question 24

why is land and land improvements separate

Answer 24

bc land doesnt depreciate but land improvements do

Question 25

2 scenarios of how a company can get a building

Answer 25

buy it
make it

Question 26

what is the cost of building when building is bought

Answer 26

1) purchase price
2) costs to finalize transaction (legal fees etc)
3) costs required to make building ready for use

Question 27

are buidling costs operating expense of capital expenses

Answer 27

Companies will capitalize all these costs to the Buildings account.

Question 28

what is the cost of a building when it is constructed

Answer 28

1) contract price
2) pay for architect fees, ,buidlign permits, exactivon costs

In addition, when constructing a new building, a company may include interest costs relating to a loan obtained to finance a construction project in the cost of the building but only up to the date that the asset is ready for its intended use.

Question 29

what is the cost of equipment

Answer 29

1) purchase price, and all costs that are necesary to get equipment ready for its use (frieght charges, slaes tax, cost of insurance during transit)

2) expenses incurred to assemble, install, and test the equipment

Question 30

Companies record recurring expenditures such as the renewal of vehicle licences or ongoing insurance as operating expenditures (expensed not capitalized) when incurred. Two criteria apply when determining if such costs should be expensed:The frequency of the cost—one time or recurringThe benefit period—the life of the asset or one year

Answer 30

Companies record recurring expenditures such as the renewal of vehicle licences or ongoing insurance as operating expenditures (expensed not capitalized) when incurred. Two criteria apply when determining if such costs should be expensed:The frequency of the cost—one time or recurringThe benefit period—the life of the asset or one year

Question 31

operating expenses
-what
-recurring?
-ex
- how is recorded in books

Answer 31

benefit only the current period

1)They maintain an asset in its normal operating condition and often recur

ex: Examples include repainting a building or replacing the tires on a truck.

2)Companies will record these costs in an expense account, such as Repairs and Maintenance Expense, rather than capitalizingthem (adding them to theasset account).

Question 32

capital expenses
-what
-recurring?
-are they big

Answer 32

beneift more than one period

-do not recurr freuqenelty and are usully big

-These costssignificantly improve the asset by extending its useful life or by improving its productivity.

Question 33

two parties in leasing

Answer 33

Lessor
Lessee

Question 34

Lessor

Answer 34

owns the asset and agrees to allow other party to rent

Question 35

Lessee

Answer 35

rents the asset for a period of time

Question 36

3 benefits of leasing

Answer 36

1- little or 0 down payment
2- reduced risk of obsoleensence (do not own good)
3- income tax advantages (lease payments are tax deductible)

Question 37

We account for lease transactions according to their economic substance. This ensures that there is a faithful representation of the transaction in the accounting records,

Answer 37

We account for lease transactions according to their economic substance. This ensures that there is a faithful representation of the transaction in the accounting records,

Question 38

if lessor transfers risk and reward to lessee, even tho legal title not passed, who will record the transaction ?

Answer 38

LESSEE as an asset purchase, they will note that it was financed by a loan from the lessor

they will record it as a “right of use asset”

Answer 39

what

Question 40

what is a right of use asset

Answer 40

A leased asset recorded as property, plant, and equipment because the right to use the asset has been obtained by the lessee, usually because the lease extends beyond one year.

Question 41

how is the related loan coming from a right of use asset recroded?

Answer 41

as a lease liability

Question 42

The lessee will also record depreciation expense on the right-of-use asset and interest expense on the lease liability

Answer 42

The lessee will also record depreciation expense on the right-of-use asset and interest expense on the lease liability

Question 43

Under International Financial Reporting Standards (IFRS), companies capitalize almost all leases beyond one year in this manner.Under IFRS, there are two exceptions to the accounting treatment described above. The first is for leases with a term of less than 12 months, known as short-term leases. The second exception is for leases of low-value assets such as personal computers, small items of office furniture, and phones. If either of these exceptions applies, then the lessee does not record a right-of-use asset or a lease liability. Instead, the lessee records the lease payments as a period expense (Rent Expense).ASPE Under Accounting Standards for Private Enterprises (ASPE), there are two types of leases: capital leases and operating leases. Capital leases are leases in which the benefits and risks of ownership of the leased asset have been transferred to the lessee. Companies account for capital lease assets and liabilities in the same manner as IFRS. If the lease does not transfer the risks and rewards of ownership to the lessee, the lease is anoperating lease. Under an operating lease, companies do not record an asset or liability; rather, they record each lease payment as rent (lease) expense on the statement of income. Because no lease liability is recorded under an operating lease, this is commonly known as off–balance sheet financing, which simply means that an asset and liability have not been recorded when the lease began.

Answer 43

Under International Financial Reporting Standards (IFRS), companies capitalize almost all leases beyond one year in this manner.Under IFRS, there are two exceptions to the accounting treatment described above. The first is for leases with a term of less than 12 months, known as short-term leases. The second exception is for leases of low-value assets such as personal computers, small items of office furniture, and phones. If either of these exceptions applies, then the lessee does not record a right-of-use asset or a lease liability. Instead, the lessee records the lease payments as a period expense (Rent Expense).ASPE Under Accounting Standards for Private Enterprises (ASPE), there are two types of leases: capital leases and operating leases. Capital leases are leases in which the benefits and risks of ownership of the leased asset have been transferred to the lessee. Companies account for capital lease assets and liabilities in the same manner as IFRS. If the lease does not transfer the risks and rewards of ownership to the lessee, the lease is anoperating lease. Under an operating lease, companies do not record an asset or liability; rather, they record each lease payment as rent (lease) expense on the statement of income. Because no lease liability is recorded under an operating lease, this is commonly known as off–balance sheet financing, which simply means that an asset and liability have not been recorded when the lease began.

Question 44

Companies often incur costs when they renovate leased property. Companies will debit these costs to a separate asset account called Leasehold Improvements. Since the leasehold improvements become “attached” to a leased property, they belong to the lessor (the landlord, not the tenant)at the end of the lease. Because the benefits of these improvements to the lessee will end when the lease expires, the lessee will depreciate improvements over the shorter of the remaining life of the lease (including any renewal options) or the useful life of the improvements

Answer 44

Companies often incur costs when they renovate leased property. Companies will debit these costs to a separate asset account called Leasehold Improvements. Since the leasehold improvements become “attached” to a leased property, they belong to the lessor (the landlord, not the tenant)at the end of the lease. Because the benefits of these improvements to the lessee will end when the lease expires, the lessee will depreciate improvements over the shorter of the remaining life of the lease (including any renewal options) or the useful life of the improvements