F3/M4 PP&E

Question 1

JE for Land Donated

Answer 1

Dr: Land (FMV)
Cr: Gain on nonreciprocal transfer

Question 2

Cost of PP&E =

Answer 2

Cash or Cash equivalent transferred
(+) Costs to get it to the location
(+) Costs to get it to condition necessary for usage

Question 3

(T/F): IFRS permits a Revaluation Model for valuing fixed assets like PP&E.

Answer 3

True (this is the “R” in “PUFER” under IFRS)

• Applies to a Class of fixed assets, not individual assets
• Class is reported at FV (-) subsequent accumulated depreciation and impairment
• Must be revalued frequently

Question 4

(T/F): Initial Revaluation losses are posted on the income statement. Revaluation losses that reduce a previously recorded Revaluation gain are reported to OCI

Answer 4

True, rule of conservatism

Question 5

(T/F): Initial Revaluation gains are posted on OCI. Revaluation gains that reduce a previously recorded Revaluation loss are reported to the income statement.

Answer 5

True, PUFE”R”

Question 6

(T/F): Everything up to the excavation costs for the building are included in the cost of land

Answer 6

True; this includes...
- Drainage fees
- Legal fees
- Brokers commission 
- Title and recording fees
- Site development
- Mortgages and taxes
- Cost of destroying old building (less proceeds from old building)
-

Question 7

(T/F): Land improvements are depreciable

Answer 7

True;

• Sidewalks
• landscaping
• Paving
• Water systems

Question 8

Costs of Plant (Buildings)

Answer 8

• Purchase price
• Excavation costs
• Deferred maintenance charges
• Possible addition of construction period interest

Question 9

Costs of Equipment

Answer 9

• Invoice price
• Freight in
• insurance while in transit
• installation charges
• sales and federal taxes

Question 10

(T/F): Improvement (betterment) and replacements are capitalized if they increase usefulness

Answer 10

True;

- reduce accumulated depreciation if it increases life

Question 11

(T/F): Ordinary expenses such as repairs and maintenance are expensed

Answer 11

True; extraordinary repairs are capitalized if they increase usefulness
- Reduce accumulated depreciation if they increase life

Question 12

Costs to Capitalize constructed assets

Answer 12

• DM and DL
• Overhead
• Construction period interest
• Repairs and maintenance that add value

Question 13

Capitalization of Interest costs

Answer 13

Capitalization should be based on the weighted average of accumulated expenditures (avoidable interest)
Rule 1: only capitalize interest on money actually spent , not on total amount borrowed
Rule 2: The amount of capitalized interest should not exceed the actual amount of interest paid

Question 14

Capitalization of Interest Period criteria begins when these 3 criteria are met

Answer 14

1. Expenditures for asset have been made
2. Permits have been filed
3. Interest began accruing

Capitalization stops during intentional delays

Capitalization of interest stops when substantially complete

Question 15

(T/F): Software should be capitalized and amortized over its useful life, not depreciated

Answer 15

True