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Intermediate Accounting > Chapter 4 - PPE > Flashcards

Chapter 4 - PPE Flashcards

1
Q

PPE is _____ asset that is held for ______, usually for ______

A

Tangible; Operations; More than one period

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2
Q

PPE is for use in ______, NOT for ______

A

Operations; Resale

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3
Q

Fixed asset consists of ______ and ______ assets

A

Operating; Non-operating (investments)

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4
Q

“Operating assets” consist of _____ and ______ assets.

A

Tangible (PPE); Intangible

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5
Q

(PPE)
Debit: _____
Credit ____

A

Debit:
Beginning Balance
Acquisition Cost

Credit:
Depreciation (cost allocation)
Ending Balance (valuation)

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6
Q

Under “Acquisition Cost,” what are the 6 factors to consider? (LIIINS)

A
  1. Lump-sum purchase
  2. Incidental costs
  3. Issuance of shares
  4. Interest during construction (borrowing cost)
  5. Non-monetary exchange
  6. Subsequent expenditures
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7
Q

_______ to prepare asset for intended use is generally _______

A

Direct costs; Capitalized

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8
Q

Usage of PPE in operations is considered as ______

A

Depreciation expense

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9
Q

In a “Lump-sum Purchase,” the company allocates ______ among the various assets on basis of their _______.

A

Total cost; Relative fair values

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10
Q

If two assets are purchased at lump-sum and fair value of only one asset is ______, then the company must allocate the lump-sum price to the asset first by ____

A

Known; Fair value

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11
Q

What are the 3 types of “Incidental Costs”? (LBE)

A

(Cost of…)

  1. Land
  2. Building
  3. Equipment
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12
Q

“Cost of land” consists of: (CRAI)

A
  1. Closing costs (title, attorney’s fees, recording fees)
  2. Ready for intended use costs (grading, filing, draining, etc.)
  3. Assumption of any liens, mortgages, encumbrances
  4. Improvements on land with indefinite life
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13
Q

“Cost of building” consists of: (REA)

A
  1. Remodeling/reconditioning costs
  2. Excavation costs (for specific building)
  3. Architectural costs/permit costs
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14
Q

“Cost of equipment” consists of: (FAT)

A
  1. Freight-in/handling costs

2. Assembly, installation, conducting Trial runs

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15
Q

Companies sometimes acquire PPE by ________, such as ordinary stocks

A

Issuing securities

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16
Q

If stock is actively traded, then the _______ of the stock is fair indication of _________

A

Market price; Cost of the property acquired

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17
Q

(Capitalization period) Capitalization starts when expenses/interest costs are _______, and ends when _________

A

Being incurred; Asset is ready for intended use

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18
Q

What are 2 types of “Qualifying Assets”? (COSL)

A
  1. Company’s Own use assets

2. Sale or Lease assets that are constructed as discrete projects (ship or real estate development)

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19
Q

(Non-monetary Exchange) In general, accounting for non-monetary transactions should be based on ______of assets. Thus, companies should ________ recognize any _________ on the exchange.

A

Fair values; Immediately; Gain or loss

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20
Q

Non-monetary transactions are immediately recognized when they have ________

A

Commercial substance

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21
Q

An exchange has “commercial substance” if ________ change as a result of the transaction. It means that _____ and _______ of cash flows arising from exchanged assets will be significantly different.

A

Future cash flows; Timing; Amount

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22
Q

If an exchange has “commercial substance,” then ____ value is used.

Exception: (FE)

A

Fair

Exception:

  1. Fair value is unknown
  2. Exchange for facilitation of sales
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23
Q

If an exchange DOES NOT have “commercial substance,” then _____ value is used. HOWEVER, exceptions are:

A

Book;

Exceptions:

  1. Conservatism
  2. Receiving boot
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24
Q

(Subsequent expenditures) Subsequent expenditures are recognized as an asset when the ________ from expenditures is ______ and ________ with sufficient certainty.

A

Future economic benefit; Probable; Measurable

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25
Q

Evidence of future economic benefit depends on ______ in the value of the asset.

A

Increase

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26
Q

“Increase” of value of the asset includes: (QQS) (Capital expenditure)

A
  1. Quantity of product produced
  2. Quality of product produced
  3. Service life of the asset
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27
Q

If expenditures merely ______ the value of the asset, then it should be recorded as ______

A

Maintains; Expense (revenue expenditure)

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28
Q

“Subsequent expenditure” consists of: (AIRR)

A
  1. Additions
  2. Improvements
  3. Replacements
  4. Repairs
29
Q

If replacement will only increase the ______of the asset, companies record it as increase of ________ of the asset.

A

Service life; Accumulated Depreciation

30
Q

“Depreciation” applies to: (PT)

A

PPE (Tangible assets)

31
Q

“Amortization” applies to: (IPC)

A

Intangible assets (patent, copyright)

32
Q

“Depletion” applies to: (N)

A

Natural resources

33
Q

What are the 3 factors of “Depreciation”? (OSS)

A
  1. Original cost
  2. Service life
  3. Salvage value (residual value)
34
Q

What are the 3 assumptions/methods for “Depreciation” pattern? (ASA)

A
  1. Activity method/Units-of-production approach (proportion to usage)
  2. Straight-line method (proportion to time)
  3. Accelerated method (inverse proportion to time)
35
Q

“Activity method” assumes that depreciation is a function ______. It is only appropriate when units of output/service can be

A

Usage; Measured

36
Q

“Straight-line method” assumes that depreciation is a function of ____

A

Time

37
Q

“Accelerated method” provides _______ expense in ______ years than later periods (PPE is more actively used in the beginning)

A

Higher depreciation; Earlier

38
Q

(Depreciation) What are the 2 types of “Accelerated method”? (DS)

A
  1. Double Declining Balance Method - Depreciation rate that is 200% of the straight-line method
  2. Sum of Years’ Digits Method
39
Q

“Component Depreciation” is required by _____, and requires each part of PPE that is significant to the _____ of the asset must be depreciated _______

A

IFRS; Total cost; Separately

40
Q

“Composite (or Group) Method” is a process of depreciating the ______ of assets using a ___________ that is computed by ________ method

A

Entire class; Single depreciation rate; Straight-line

41
Q

(Depreciation) For partial periods, the accepted approaches for depreciation are: (NFHND)

A
  1. No depreciation in acquisition and a full year’s depreciation in disposition
  2. Full year’s depreciation in acquisition and no depreciation in disposition
  3. Half-year convention
  4. Nearest full month basis
  5. Daily basis
42
Q

(Valuation) What are the 2 models for PPE valuation? (CR)

A
  1. Cost model (impairment - conservatism)

2. Revaluation model (Fair value model)

43
Q

(Valuation) What are the 2 types of “cost model” valuation? (UI)

A
  1. US GAAP

2. IFRS

44
Q

(Valuation) Under “US GAAP,” what are the 2 types of valuation methods? (HUD)

A
  1. Held for use - Recoverability test; Measurement; at least Annually; Impairment loss reported as component of income from continuing operation; New cost basis; Restoration NOT permitted
  2. Held for disposal - Treated like inventory (report at LCN); restoration is permitted
45
Q

(Valuation) Under “IFRS,” valuation is conducted at _____, and restoration is/is not permitted.

A

Year’s end; IS

46
Q

(Valuation) Under “Revaluation model,” a class of fixed assets is revalued to ____

A

Fair value

47
Q

(Valuation) “Revaluation Surplus” is reported as ________, NOT net income

A

Other comprehensive income (OCI)

48
Q

(Valuation) “Revaluation Loss” is reported in ______

A

Net income

49
Q

If PPE is purchased using stock issuance, then the value of PPE is determined by ______, NOT the CSG of PPE

A

Fair value of the stock’s trading price

50
Q

“Interest During Construction” is also called ______

A

Borrowing Cost

51
Q

(Qualifying assets) For “Interest During Construction,” the 2 types of asset allowed are:

A
  1. Asset for company’s own use

2. Asset for sale or lease that are constructed as discrete project(e.g., ship or real estate development)

52
Q

Avoidable Interest = ?

A

(Weighted average accumulated expenditure) X Interest (specific interest rate for construction & other weighted interest rate)

53
Q

(Non-monetary exchange) If two exchanged assets have different characteristics (timing, amount, risk), then there is _________. If same characteristics, then _____

A

Commercial substance; NO commercial substance

54
Q

“Boot” is to receive ____. (NOT give).

A

Difference in cash

55
Q

(Boot) If cash received is 25% or more of the total value, then it is journalized as ____

A

Same as “cash exchange”

56
Q

(Boot) Gain = ?

A

(FV - BV) X (Cash/FV)

57
Q

“Cash” may be both _____ value and ______ value.

A

Fair; Book

58
Q

“Land” ______ depreciate.

A

DOES NOT

59
Q

(Depreciation) Under “Activity” assumption, depreciation is calculated as:

A

(Original cost - Salvage value) X (actual use/estimated total use)

60
Q

(Depreciation) Under “Straight-Line” assumption, depreciation is calculated as:

A

(Original cost - Salvage value) X (1/number of years)

61
Q

(Depreciation) Under Declining Purchase Method under “Accelerated method” assumption, what are the 2 types of methods? (FD)

A
  1. Fixed % method

2. Double Declining Balance method

62
Q

(Depreciation) When using “Composite Method,” the depreciation method to apply is _______

A

Straight Line Depreciation

63
Q

(Valuation) For US GAAP Method’s “Recoverability Test (for determining whether there was loss),” _______ used is _______.

A

Future cash flows (as recoverable cash); UNdiscounted

64
Q

(Valuation) For US GAAP Method’s “Measurement Test (for determining actual loss),” ______ used is _____

A

Impairment loss; NRV

65
Q

(Valuation) For US GAAP Method, restoration is/is not permitted, because there is a new _______

A

Is NOT; Cost basis

66
Q

(Valuation) For PPE assets “Held for Disposal,” assets are treated like _____, so it should be valuated based on ____. Restoration is/is not permitted.

A

Inventory; LCN; IS

67
Q

(Valuation) Under IFRS, _____ value is compared with ______ amount (value in use, which is ______ future cash flow VS. ____)

A

Book; Recoverability; DISCOUNTED; NRV

68
Q

(Valuation) Under “Revaluation Model,” _____ is used. The “surplus” is journalized as ______, and “loss” is journalized as _____

A

NRV; OCI; Net Income

Intermediate Accounting (9 decks)

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