CHh. 10 Property, Plant, and Equipment: Mixed Topics

Question 1

GAAP and IFRS are what systems

Answer 1

mixed-attribute systems

Question 2

record amounts at what they are worth today

Answer 2

fair value
- investments

Question 3

3 things to determine PPE

Answer 3

1. activity used in operations
2. long term in nature (benefit > 1 year)
3. tangible - physically touch it

Question 4

5 accounts in PPE

Answer 4

1. land
2. land improvements
3. equipment
4. buildings
5. construction in process

Question 5

property currently in service as a building site

Answer 5

land

Question 6

4 acquisition costs under land

Answer 6

1. purchase price
2. reasonable purchase fees (realtor commission, closing costs)
3. work required to be able to build on the land (clearing, grading, filling, draining)
4. removing structures if redeveloping

Question 7

whats accounting treatment on land

Answer 7

do no depreciate

Question 8

site enhancements that are not permanent (sidewalks, driveways, parking lots, landscaping)

Answer 8

land improvements

Question 9

accounting treatment for land improvements

Answer 9

depreciate

Question 10

what is the difference in land and land improvements? + why would improvements be depreciated but not land itself

Answer 10

land improvements require maintenance, subject to damage eventually be replaced

Question 11

tangible property used in companys operations (drills, saws, machines, tools)

Answer 11

equipment

Question 12

capitalize all reasonable acquisition costs under equipment such as

Answer 12

• purchase price (net of discounts)
• installation
• sales tax
• freight

Question 13

accounting treatment for equipment

Answer 13

depreciate

Question 14

permanent or temporary structures used in companys operations
- exclude the land
-capitalize all reasonable acquisition costs

Answer 14

buildings

Question 15

accounting treatement for buildings

Answer 15

depreciate

Question 16

• PPE assets (like building or equipment) being manufactured

Answer 16

construction in process

Question 17

• capitalize all reasonable costs to build
  (what you would have been billed by someone else if paying to have it manufactured)

Answer 17

construction in process

Question 18

accounting treatment for construction in process

Answer 18

accumulate costs in construction in process
(transfer to building, equipment, etc. and then start depreciating)

Question 19

several fixed assets are purchased for a lump sum
(purchasing land with a building on it)

Answer 19

lump sum (basket purchased)

Question 20

2 lump sum methods

Answer 20

1. proportional method
   2.incremental method

Question 21

acquire a new asset by giving up an old asset

Answer 21

nonmonetary asset exchange

Question 22

4 steps to account for non monetary asset exchange

Answer 22

1. record the new asset at fair value
2. remove book value of asset given up
3. record any cash received or paid
4. plug entry to gain or loss

Question 23

purpose fix the transaction other than tax avoidance

Answer 23

commercial substance

Question 24

assume all transactions have _______ substance

Answer 24

commercial substance

Question 25

compony constructs its own asset rather than purchase (nike builds their own manufacturing center

Answer 25

self constructed asset & interest capitalization

Question 26

2 primary accounting issues with self constructed assets and interest capitalization

Answer 26

1. what to do with overhead 2. what to do with interest incurring during construction

Question 27

- incremental overhead approach - full cost approach which accounting issue with self constructed assets and interest capitalizationis this?

Answer 27

what to do with overhead

Question 28

- asset includes all cost necessary to get asset ready for intended use which accounting issue with self constructed assets and interest capitalization is this?

Answer 28

what to do with interest incurring during construction

Question 29

3 steps when self constructed assets & interest capitalization

Answer 29

1. determine accumulated depreciation 2. calculate amount of interest to be capitalized 3. make sure actual interest incurred > capitalized interest

Question 30

capitalize interest based on what we actually spend on construction which step is this a part of?

Answer 30

step 1: determine accumulated depreciation

Question 31

- use interest rate on construction specific loan if available - use average interest rate on "normal" debt if no specific construction loan which step is this a part of?

Answer 31

step 2: calculate amount of interest to be capitalized

Question 32

- GAAP allows you to use any systematic and rational approach to do this - the objective is to allocate expense

Answer 32

depreciation

Question 33

3 main methods of depreciation

Answer 33

1. uniform 2. accelerated 3. output

Question 34

- straight line which method of depreciation is this?

Answer 34

unifrom

Question 35

- sum of the years digits - declining balance which method of depreciation is this?

Answer 35

accelerated

Question 36

- units of production which method of depreciation is this?

Answer 36

output

Question 37

Weve calculated the amount of depreciation what do we do with that amount

Answer 37

Dr. depreciation expense (-SE) Cr. accumulated depreciation (-A)

Question 38

How do we present PPE on the balance sheet with the effect of depreciation

Answer 38

Dr. land Dr. equipment Cr. accumulated depreciation

Question 39

why do we credit accumulated depreciation, rather than equipment, each period

Answer 39

historical cost is preserved in the equipment account

Question 40

net book value does not equal

Answer 40

fair value

Question 41

________ is a systematic and rational method to assign costs, but it does not track the actual decline in value of the item

Answer 41

depreciation

Question 42

3 steps to account for disposal of PPE

Answer 42

1. update depreciation to time of disposal 2. determine gain or loss 3. remove asset and accumulated depreciation from books

Question 43

switching from accelerated to non accelerated is

Answer 43

relatively common

Question 44

switching from non accelerated to accelerated is

Answer 44

uncommon

Question 45

2 steps to determine if you record an impairment

Answer 45

step 1: compare net cash inflows to book value/carrying value/net book value - IF STEP 1 FAILED GO TO STEP 2 step 2: compare fair value to carrying value(net book value) - IF NET BOOK VALUE IS < FAIR VALUE = RECORD AN IMPAIRMENT

Question 46

what happens if the asset is no longer in use

Answer 46

- assess the asset for impairment - transfer the asset to "other assets" - discontinue depreciation

Question 47

________ assets are unique in that they can be written up or down

Answer 47

held for sale assets

Question 48

costs to keep assets in operating condition without prolonging the useful life

Answer 48

maintenance and ordinary repairs

Question 49

accounting treatment for maintenance and ordinary repairs

Answer 49

expense (oil changes, replacing small parts)

Question 50

3 potential accounting treatments for improvements or replacements

Answer 50

1. substitution 2. capitalize the asset replacement 3. reduction of accumulated depreciation

Question 51

- remove the net book value of the old component - add the cost of the new component which potential accounting treament to improvements or replacements is this

Answer 51

treatment 1: substitution

Question 52

2 steps to improvement treatment 1: substitution

Answer 52

step 1. remove the cost of the original component step 2. capitalize the asset replacement

Question 53

- use if old component is fully depreciated which potential accounting treament to improvements or replacements is this

Answer 53

treatment 2: capitalization

Question 54

- length of life of asset is extended but quality is not improved which potential accounting treament to improvements or replacements is this

Answer 54

treatment 3: reduction of accumulated depreciation

Question 55

2 treatments for rearrangements

Answer 55

treatment 1: capitalize and depreciate treatment 2: expense

Question 56

- if adds benefit to future periods which potential accounting treament to rearrangements is this

Answer 56

treatement 1: capitalize and depreciate

Question 57

- no clear benefit to the future which potential accounting treament to rearrangements is this

Answer 57

treatment 2: expense