Chapter 8: Property Plant and Equipment Flashcards
How should leasehold improvements be amortized?
They should be amortized with straight-line method over lower of the expected useful life or the lease term.
What is the capitalization period for interest costs for PPE?
The period of time between acquiring it and bringing it to the condition/location for intended use.
When is the basis for accounting for a non-monetary transaction the carrying amount and not the fair value?
1) When the fair value of both the assets exchanged is not readily determinable, 2) when the exchange involves inventory that is in the same line of business that facilitates sales to customers not parties in the exchange, 3) or the exchange lacks commercial substance
Can a previously recognized impairment loss be reversed?
No, it may not be reversed under U.S. GAAP.
What is double-declining-balance (DDB) method?
Twice the straight-line depreciation rate. (100% ÷ Estimated Useful Life) x 2
What is capitalized interest equal to?
Weighted-average of accumulated expenditures during the period x interest rate
What is the test for recognition of an impairment loss? How is the loss calculated?
If the recoverable amount (undiscounted future cash flows expected) is less than the carrying amount. (When the carrying amount is not recoverable). The loss is calculated by using the carrying value less the fair value.
What are the different depreciate methods and how they calculated?
Straight line -> using the depreciable base divided by the estimated useful life allocated evenly
Double declining -> using 100% divided by the estimated useful life x 2. then using this percentage, multiply by the carrying amount
Sum-of-the-years-digits -> SYD denominator is the sum of the years with the numerator being the estimated life remaining. IE. Estimated useful life is 5 years, SYD denominator is 15 (1+2+3+4+5), Year 1 SYD fraction = 5÷15, Year 2 SYD fraction = 4÷15
Units-of-Production -> based on the units produced during current period/estimated total lifetime units
What are the steps if the carrying amount is used for a non-monetary exchange for the assets given up?
The fair value of the asset being exchanged is lower than its carrying amount, an impairment loss must be recognized.
1) Must be written down to FV with impairment loss recognized
2) Exchange is measured at the new carrying amount of the asset given up (FV of the asset on exchange date)
What if a boot (cash paid/received) is a part of a non-monetary exchange that is measured at carrying amount?
1) Calculate potential gain from exchange
FV of assets received
+ Boot Received
- Carrying amount of asset given up
= Total potential gain
2) Calculate the proportion of assets received represented by boot.
Boot received ÷ (FV of assets received + boot received)
3) Determine the amount of gain recognized
Proportion represent by boot (step 2)
x Total potential gain (step 1)
NOTE: If proportion represented by boot is greater than 25%, it is treated as a monetary transaction (record at FV and recognize gain/loss in full).
How is the disposal group of a long-lived asset held for sale reported?
Assets and liabilities of the disposal group are reported separately in the balance sheet.
When is impairment recognized?
When the carrying value exceeds the sum of the undiscounted cash flows
What is the impairment loss equal to?
The carrying amount minus the fair value
