Chapter 4 Section 3: Fixed Assets

Question 1

How are donated fixed assets recorded?

Answer 1

FMV plus incidental costs incurred. They result in a gain.

Question 2

Define fixed asset

Answer 2

Acquired for use in operations - not resale

Long term and subject to depreciation (except land)

Question 3

Where do gains and losses from the revaluation model go?

Answer 3

Loss: I/S, unless it is reversing a gain, which would then be in OCI
Gain: OCI, unless it is reversing a loss, which would then be on I/S
Impairment loss: zero out gains first, then put on I/S

Question 4

What goes into the cost of land?
What does not?
What is depreciable?

Answer 4

All costs incurred up to excavation (digging is a building cost) are included. Note - filling in a hold is okay.
Excavation forward is not included in land - it is part of building.
For land, improvements are the only thing that are depreciable.

Question 5

Define investment property

Answer 5

Property acquired to earn rentals or capital appreciation.

Question 6

Explain the capitalization of construction interest costs

Answer 6

Only capitalize interest on money actually spent, not on the total amount borrowed.
Use the lower of the actual interest cost incurred or the computed capitalized interest (avoidable interest). Expense the rest.
Uses the average accumulated expenses and first use the interest on debt specific to that project, then branch out.