Chapter 10: Property Plant and Equipment

Question 1

Characteristics

Answer 1

Acquired for use not resale; long lives, subject to depreciation or depletion (except land); tangible - possess physical substance.

Question 2

Acquisition of PPE: Valuation Rule

Answer 2

(for all assets) 1.) Cash equivalent price 2.) All necessary costs required to make the asset ready for use

Question 3

Acquisition of PPE: Components of Cost

Answer 3

Cost of self-constructed assets, interest costs (capitalized - treat as asset)

Question 4

Mean of Acquisition

Answer 4

Lump-sum purchase, deferred payment contracts (PV), issuance of stock, non-monetary exchanges

Question 5

During Holding Period

Answer 5

Cost allocation (depreciation, depletion), Subsequent costs (expense of capitalize, approaches for capitalization), Impairment

Question 6

Disposition of PPE

Answer 6

Sale (for cash), Exchange

Question 7

Conditions of Capitalization Period

Answer 7

Expenditures have been made, construction activities are in process, interest costs are being incurred

Question 8

Non-Monetary Exchanges

Answer 8

An exchange of plant assets in which the amount of cash is a relatively insignificant portion of the exchange value (cash must be 25% or less of exchange value)

Question 9

Underlying Assumption of Non-Monetary Exchanges

Answer 9

Fair value given up = Fair value received

Question 10

3 Conditions to Capitalize Subsequent Costs

Answer 10

1.) Useful life of asset is increased 2.) Quantity of service from asset is increased 3.) Quality of service from asset is increased (only need to meet one)

Question 11

Alternative Methods of Capitalizing Subsequent Costs

Answer 11

Substitution, New Asset, Charge to accumulated depreciation

Question 12

Types of Subsequent Costs

Answer 12

Additions, Repairs and Maintenance (ordinary or extraordinary/major), improvements and replacements, rearrangements and installations