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F4- Fixed Assets/Dep. Flashcards

1
Q

Which expenditures are included in the cost of a building?

A

All expenditures to get the building into working condition are ready for use

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2
Q

Which expenditures are included in the cost of land?

A

All expenditures to get the land ready for its intended use:

  • Title & County Fees
  • Clearing of Land - Dirt work etc.
  • Demolition and removal of old buildings (minus any scrap or salvage)
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3
Q

How is double-declining balance (DDB) depreciation calculated?

A

1 / (Useful Life x 2 x Book Value)

- Ignore salvage value.

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4
Q

How is Sum of Year’s Digits (SYD) depreciation calculated?

A

(Cost - Salvage Value) x (Remaining Useful Life / SYD) : Depreciation expense

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5
Q

How is straight line depreciation calculated?

A

(Cost - Salvage Value) / Useful life : depreciation expense

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6
Q

When is an asset considered to be impaired? How is impairment loss calculated?

A

When the un-discounted future cash flows are less than the carrying value of the asset.

Carrying Value - Fair Value : Impairment Loss

Note: impaired assets that recover their value can’t be written back up once written down

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7
Q

What expenditures are included in the cost of equipment?

A

All expenditures to get the asset into working condition and ready for use:

  • Purchase price + liabilities assumed
  • Shipping, Taxes, Insurance, Installation, Testing, Legal fees, Construction loan interest
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8
Q

Valuation of Fixed Assets

[IFRS]

A
  • Recognized at the cost to acquire the asset

- Valued using the Cost model or Revaluation Model

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9
Q

Cost Model

[IFRS]

A
  • Fixed Assets reported at Historical cost adjusted for accumulated dep. & Impariment
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10
Q

Revaluation Model

A
  • Revalued to FV & then reported at FV less subsequent Acc. Dep. & Impairment
  • Ensure that carrying amount doesn’t differ materially from FV at the end of the reporting period.
  • Must be applied to all items in a class of Fixed assets, NOT to individual fixed assets.
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11
Q

Revaluation Losses

[IFRS]

A
  • In Income Statement
  • FV< Carrying Value before Reval.
  • Unless loss reverses a previously recognized reval. gain.
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12
Q

Revaluation Gains

[IFRS]

A
  • Not on I/S on OCI

- Acc. in equity as Reval. surplus, unless the Reval. gain reverses a previously recognized Reval. loss.

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13
Q

Revaluation Model Impairment

A
  • Fixed Assets become impairment, recorded by first reducing any reval. surplus to zero with further impairment losses reported on the I.S.
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14
Q

Cost of Equipment

A
  • Include: Invoice Price
  • Less: Cash discounts
  • ADD:
    Freight-in, Installation charges,
    Sales & Federal Excise Taxes

~Possible Addition of construction period interest

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15
Q

Capitalize Costs when?

A
  • The Costs Improves the quality of fixed assets
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16
Q

Repairs: Expense/ Capitalize?

A
  • Expense: Ordinary repairs

Capitalize Extraordinary repairs:

  • Treat as addition, Improvement, or replacement.
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17
Q

Land Cost Calc.

A
  • Purchase price
  • Broker’s Commissions
  • Title & Recording Fees
  • Legal Fees
  • Mortgages & Back taxes

LESS- Proceeds from sale of existing buildings

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18
Q

Land Improvements

A
  • ARE Depreciable
  • Fences
  • Water systems
  • Sidewalks
  • Paving Landscaping
  • Lighting
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19
Q

Cost of Buildings items included

A
  • Purchase Price
  • All Repairs charges neglected by previous owner
  • Alternations & Improvements
  • Architects fees
  • Possible addition of construction period interest
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20
Q

Basket Purchase

A
  • Land & Building:

- Allocate the purchase price based on the Ratio of Appraised values of individual items.

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21
Q

Investment Property

[IFRS]

A
  • Land or Buildings held by an entity or by a lessee under a Finance Lease:
  • To earn rentals or for capital appreciation
22
Q

Investment Property Cost Model

[IFRS]

A
  • Reported on the B.S. at Historical Cost Less Acc. Dep.

- Use FV of the investment property must be disclosed.

23
Q

Investment Property Fair Value Model is Reported where?

[IFRS]

A
  • Reported on the B.S. at FV is NOT Depreciated.
24
Q

Fixed Assets Constructed by a Company: Costs include:

A
  • Direct Materials & Direct Labor
  • Repairs & Maintenance Exp. that add value to the fixed asset.
  • Overhead
  • Do Not include Profit
25
Construction Period Interest
- Capitalize: Interest Costs | - Based on weighted average of Acc. Expenditures as part of the cost of producing fixed assets
26
Computing Capitalized Cost: Weighted average amount of Acc. Expenditures:
- Applying an interest rate to the avg. amount of acc. expenditures for the qualifying asset during the period.
27
Computing Capitalized Cost of Interest Rate on Borrowing:
- Particular period should be used to determine the amount of interest cost to be capitalized for the period. - Specific new borrowing, allocated interest cost is equal to the amount of interest incurred on the new borrowing.
28
Computing Capitalized Cost: Interest Rate on Excess Expenditures (Weighted Avg)
- If exceeds the amount of the related specific new borrowing: - Interest cost should be computed on the excess.
29
Computing Capitalized Cost: Not to Exceed Actual Interest Costs
- May not exceed the total interest costs actually incurred by an entity during that period.
30
-Computing Capitalized Cost: Do not Reduce Capitalize Interest (2 Rules)
- Rule 1: Only capitalize interest on money actually spent, not on the total amount borrowed. - Rule 2: The amount of Capitalized interest is the lower of: ~Actual interest cost incurred ~Computed capitalized interest (avoidable interest)
31
Capitalization of Interest Period: Begins & Con't as long as when 3 conditions are Present:
- Expenditures for the asset have been made - Activities that are necessary to get the asset ready for its intended use are in progress. - Interest Cost is being incurred.
32
Disclose in Financial Statements | [Capitalization of Interest Costs]
- Total interest cost incurred during the period | - Capitalized interest cost of the period
33
Depreciation Methods
- Reasonable - Consistent matching of revenue & expense by systemically allocating the cost of the depreciable asset over its estimated useful life.
34
Advantages of Component Dep. over Composite Dep.
- More accurate because each component item would be dep. over its useful life. - Repair & maintenence exp. would be more accurate b/c replacements of components would be excluded.
35
Component Depreciation allowed?
- Not available for MACRS recovery property for tax purposes - B/C Dep. Exp. under the Component Method is generally higher & MACRS is already high. - It does appear to be available when straight-line Dep. is elected.
36
Composite (Dissimilar) or | Group (Similar Asset) Depr.
- Depreciating the entire class of assets over a single life. - Thus simplifying record keeping of assets & Depr. Calc. - No Gain or loss is recognized when one asset in the group is retired.
37
Declining Balance
- In the final year, asset is depr. to its S.Value | - No allowance is made for S.V B/c the method always leaves a remaining balance.
38
Depreciation Disclosure
- Depr. exp for the period - Balance of major classes of depr. assets by nature or function - Acc. Depr. allowances by classes or in total - Methods used, by major classes, in computing depr.
39
Cost Depletion | [GAAP]
- Computed by dividing the current estimated recoverable units into unrecovered cost - To arrive at a cost depletion rate - Which is multiplied by units produced to allocate the costs to production
40
Percentage Depletion | [Not GAAP]
- Based on % of sales; as tax deduction to encourage exploration of risky business - Can & usually exceed Cost Depletion - Limited to 50% of N.Inc. from the Depletion property computed before the Percentage Depletion allowance.
41
R.E.A.L Property Computation
- Residual Value- [Subtract] - Extraction/Development Cost - Anticipated restoration cost - Land purchase Price
42
Fixed Asset Impairment
- Carrying amounts of fixed assets held for use & to be disposed of need to be reviewed at least annually - Whenever events or changes in circumstances indicate that the carrying amount may not be recoverable
43
Test for Recoverability | [US GAAP]
- When Fixed Assets is tested for impairment, future cash flows expected to result from the use of the asset & its eventual disposition need to be estimated. - If the sum of undiscounted expected (future) cash flow is less than carrying amount, - An impairment loss needs to be recognized.
44
Calculation of Impairment Loss | [US GAAP]
- The amount by which the carrying mount exceeds the FV of the asset.
45
Reporting Impairment Loss | [U.S. GAAP]
- Component of income from Con't operations before Income taxes OR - Statement of Activities - related to not-for-profit entities. - Recognized by reducing the carrying value of the asset to its lower FV.
46
Impairment Calculations: US GAAP
- Determining the Impairment: Use undiscounted future net cash flows Amount of the impairment: Use FV or Discounted (PV 0future new cash flows
47
If the Carrying value of old asset is KNOWN:
- Remove it and recognize a gain or loss.
48
If the Carrying value of old asset is UNKNOWN:
- Capitalize the cost of the improvement/replacement to assets account.
49
Once IFRS's FV Model is adopted, its applied
- Consistently until the asset is disposed of or - Can no longer be classified as investment property.
50
Evidence for FV for the IFRS's FV Model is?
- Current prices in an active market for similar property in the same location & condition.
51
-Capitalization of Interest Period: Ends when?
- Asset is substantially complete & ready for the intended use.
52
What expenditures are Capitalized in the cost of equipment?
Any alterations to existing facilities or equipment necessary for the new purchase and installation that extend the life or increase the efficiency of these assets

FAR (24 decks)

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