chapter 10

Question 1

Property, plant and equipment

Answer 1

• “used in operations” and not for resale
• long-term in nature and usually depreciated
• possess physical substance
• are assets of durable natur

Question 2

Historical cost

Answer 2

measures the cash or cash equivalent price of obtaining the asset and bringing it to the location and condition necessary for its intended use

Question 3

Land costs

Answer 3

the purchase price, closing costs, such as title to the land, attorney’s fees and recording fees, costs incurred in getting the land in condition for its intended use like grading, filling, draining and clearing and assumption of any liens, mortgages or encumbrances on the property

Question 4

Cost

Answer 4

• to acquire
• bring into place
• get ready for use in operation

Question 5

Self-constructed assets

Answer 5

Materials and direct labor
-overhead can be handled in two ways:

2.assign a portion of all overhead to the construction process

Question 6

Capitalization consider 3 items

Answer 6

1. qualifying assets
2. capitalization period
3. amount to capitalize

Question 7

Qualifying Assets

Answer 7

1. Assets under construction for a company’s own use

2. assets intended for sale or lease that are constructed or produced as discrete projects

Question 8

Capitalization Period

Answer 8

Begins when
1. expenditures for the asset have been made
2.activities for readying the asset are in progress
3.interest costs are being incurred
Ends
The asset is substantially complete and ready for use

Question 9

Capital expenditure

Answer 9

in order to capitalize costs:

1. useful life must increased
2. quantity of units produced must be increased
3. quality of units produced must be enhanced

Question 10

Revenue expenditure

Answer 10

ordinary expenditures, allow you to maintain current service of the asset. It would be an expense

Question 11

nonmonetary asset

Answer 11

exchange them on the basis of the fair value of the asset given up or the fair value of the asset received, whichever is clearly more evident

Question 12

commercial substance

Answer 12

an exchange has this if the future cash flows change as a result of the transaction

Question 13

if an exchange has a commercial substance

Answer 13

recognize all gain and record new asset at a fv/mv/fmv

Question 14

no commercial substance and cash is received

Answer 14

1. recognize partial gain

2. defer the asset

Question 15

NO commercial substance and NO cash is received

Answer 15

recognize no gain

new asset is defer

Question 16

partial

Answer 16

cash received/(cash received +fv of asset)