F3 - Deck 2

Question 1

How should proceeds from the sale of a building on newly acquired land be accounted for?

Answer 1

Proceeds from the sale of a building on newly acquired land should be deducted from the cost of the land. This is because the cost of land includes all costs necessary for its preparation for construction, and proceeds from sales reduce these costs. Costs to clear the land are capitalized, not expensed or amortized.

Question 2

What costs are included in the Land account and how are other related costs accounted for?

Answer 2

Costs to clear and grade land are included in the Land account. Interest incurred to acquire land should be expensed, not capitalized, unless related to discrete manufacturing activity. Architect’s fees are charged to Buildings, and a sewage system is considered a Land Improvement.

Question 3

How are leasehold improvements accounted for in terms of capitalization and amortization?

Answer 3

Leasehold improvements are capitalized and amortized over the lesser of the life of the improvements or the remaining term of the lease. The costs should be expensed over the shorter period to reflect the benefit to the lessee. If the lease term is shorter than the life of the improvements, the benefits extend to others after the lease term ends. They are not expensed in the year the lease expires.

Question 4

What costs can be capitalized in the purchase of land?

Answer 4

Costs that can be capitalized in the purchase of land include the land purchase price, real estate taxes in arrears, and the attorney fee for the title search. These costs are necessary to acquire the land and prepare it for use. Debt issuance costs, however, are presented as a direct reduction to the carrying amount of the bond on the balance sheet and are not included in the cost of the land.

Question 5

How should ordinary repairs and expenditures that benefit several periods be accounted for?

Answer 5

Ordinary repairs should be expensed as they are incurred. Expenditures that are considered ‘additions’, ‘benefit several periods’, or ‘improve efficiency’ should be capitalized, as they provide future economic benefits.

Question 6

What costs should be capitalized for a fixed asset?

Answer 6

Capitalize all costs necessary to put a fixed asset in place, in the required condition, and at the proper time for its intended use. This includes the cost of the asset itself and related installation costs. Also, capitalize costs that improve the quality, efficiency, or productive capacity of a fixed asset.

Question 7

How should the carrying value of a damaged portion of a building and refurbishing costs be accounted for?

Answer 7

The carrying value of the damaged, uninsured portion of a building must be recognized as a loss. Refurbishing costs that create a new asset must be capitalized. If the refurbishing costs are material and extend the life of the asset, accumulated depreciation would be reduced.

Question 8

How should assets purchased with fixed payments extending beyond one year be valued?

Answer 8

Assets requiring fixed payments over more than one year should be valued at the present value of all future payments. This approach reflects the time value of money in the valuation of the asset.

Question 9

What is avoidable interest?

Answer 9

he concept of avoidable interest basically means that this interest could have been avoided if funds were not borrowed to finance construction

Question 10

Capitalized interest on construction project, calculation:

Answer 10

1. Average of Beg and Cost incurred on project
2. Time 1. by the new loan rate % will give the avoidable interest
3. Calculate both new and existing loans, totaling them up.
4. Take the lower of 2 and 3 as amount of capitalized interest.

Question 11

How is construction period interest capitalized?

Answer 11

Construction period interest is capitalized based on the weighted average of accumulated construction expenditures. The interest rate on borrowings specifically for construction is used first. If expenditures exceed specific borrowings, interest on the excess is based on the company’s other borrowing rates. Capitalized interest is determined by the average expenditures and company interest rates, not just the construction loan interest paid. It is based on the weighted average construction expenditures during the year and the rates of interest for specific borrowings.

Question 12

Capitalized interest of year end, calculation:

Answer 12

1. Weighted average of expenditures
2. Take 1. times the would be interest
3. Calculated actual interest
4. Take the lesser of 2 or 3

Question 13

When does the interest capitalization period begin and end?

Answer 13

The interest capitalization period begins when expenditures for the asset have been made, activities necessary to prepare the asset for its intended use are underway, and interest cost is being incurred. It ends when the asset is substantially complete and ready for its intended use.

Question 14

How is the double-declining balance depreciation percentage calculated and how should salvage value be considered?

Answer 14

The double-declining balance depreciation percentage is calculated as twice the straight-line rate. When calculating depreciation expense using the declining balance method, the salvage value is not subtracted from the net book value. Additionally, ensure to calculate depreciation for the correct year as requested.

Question 15

Calculation of depletion expense:

Answer 15

1. Find the Depletion base by: Adding, Purchase, development and restoration cost. Minus, sell of land (salvage).
2. Divided Depletion base by Estimated total tons in mine. This will get the per ton ratio.
3. Time the per ton to the tones removed. This will get the depletion expense.

Question 16

How should a subsequent reversal of an impairment loss be recorded under U.S. GAAP?

Answer 16

Under U.S. GAAP, a subsequent reversal of an impairment loss is prohibited, except for assets held for disposal. Therefore, no amount is recorded to reverse a previously recognized impairment loss for assets held for use.