Chapter 9 Flashcards

1
Q

What are the requirements for PP&E

A
  • used in operation and not for resale
  • long term in nature and usually depreciated
  • possess physical substance
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What does historical cost consist of

A

1.) The acquisition price plus sales tax
2.) Cost incurred bringing the asset to its location, such as freight/shipping costs
3.) Cost to get asset ready for its intended use

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Why is historical cost used for PPE cost

A
  • It is reliable
  • companies should not anticipate gains/losses until asset is sold
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What do companies consider to capitalize interest

A

1.) Qualifying assets
2.) Capitalization Period
3.) Amount to capitalize

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is capitalized interest

A

Interest on the construction loan to make asset possible

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

When does Interest Capitalization period begin

A

1.) When expenditures for the asset have be made
2.) Readying the asset is in progess
3.) Interest costs are being incurred

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

When does the interest capitalization period end

A

When you asset is ready for it’s intended use

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is book value/carrying value

A

Cost - Accumulated Depreciation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is avoidable interest

A

The interest you capitalize

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is WAAE

A

Weighted Average Accumulated Expenditures

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

How do you calculate WAAE

A

Expenditure amount X the captialization period

Ex if it started in july you would take expenditure multiplied by 6/12

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

How do you calculate the avoidable interest

A

1.) Take WAAE less than/equal to the specific loan and multiple it by the rate

2.) Amount that is greater than specific loan is multiplited by average general loan rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

How do you calculate General loan rate

A

Take amount of loan X months to find weighted principal and then you multiply by the rate

To find interest rate you take total interest divided by total weighted principal

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

If a company purchases land as a site for a structure how does it affect interest cost capitalized

A

You would add in the land to the plant when calculating interest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

When a asset exchange has commercial substance how should a company report it

A

Recognize any gains or losses immediately

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What does it mean if a transaction has commercial substance

A

The future cash flows change as a result of the transaction

The two parties economic position changes!!

17
Q

What amount of percentage does cash have to be for the entire gain to be recognized even if it lacks commercial substance

A

25%

18
Q

How do you figure out Fair Value of asset you are receiving if it is not given in the problem

A

What you owe the company + FV of machine your giving up

19
Q

How do you calculate the loss/gain of the transaction

A

Fair value of used machine - the book value of the used machine

20
Q

What do you do when the exchange lacks commercial substance but there is cash received

A

you record losses/partial gain

21
Q

How do you calc the gain that is recorded

A

(Cash or Boot /(Cash +Fair Value)) X Gain

22
Q

What do you record when a transaction lacks commercial substance and not cash is received

A

only record losses

23
Q

How do you record the gain deffered

A

Instead of writing it as a gain you just remove the amount of the gain from the Fair value of asset you are receiving

24
Q

What are the three conditions in order to capitalize a cost incurred

A

1.) Useful life must be increased
2.) Quantity of units produced must be increased
3.) Quality of units produced must be improved

25
Q

What are the 4 major types of expenditures

A

1.) Additions
2.) Improvements or replacements
3.) Rearrangements and Reinstallation
4.) Repairs

26
Q

What is typically included in land costs

A

1.) Acquisition
2.) Closing Costs
3.) cost incurred getting land ready (grading, filling clearing)
4.) assumptions of any liens, mortgages
- Salvage is reduced

27
Q

What is typically included in cost of equipment

A

-Acquisition
-Sales tax
-Insurance during transit paid by purchaser
-Assembling, installing and testing equipment
-