F4 - M4 - PP&E: Cost Basis

Question 1

PP&E

Answer 1

Fixed Assets

Use in OPERATIONS

NOT FOR RESALE

PHYSICAL SUBSTANCE, LONG TERM; DEPRECIATION

Question 2

Fixed Asset Shown Separately

Answer 2

On Balance Sheet or Footnotes at ORIGINAL / HISTORICAL COSTS (Cost - AD = NBV)

Land - No depreciation
Buildings
Equipment
Accumulated Depreciation Account - Contra Asset

Question 3

Valuation of Fixed Assets under GAAP

Answer 3

Historical Cost - PURCHASE PRICE

Cash or equivalent price to obtain asset and brining it to the location and condition necessary for use

Question 4

Donated Fixed Assets

Answer 4

Recorded at Fair Market Value with incidental costs

Dr. Fixed Asset (FMV)
CR. Gain on nonreciprocal transfer

Question 5

Valuation of Fixed Assets under IFRS

Answer 5

Cost or Revaluation

Cost Model - Like US, NBV

Revaluation Model - IFRS ONLY; class of fixed assets revalued to FV less AD and IMPAIRMENT.

• Revalue Loss (FV less CV) reported loss on I/S unless it reverses a previous gain
  
  • If pervious gain with a loss, recognize on OCI
• Revalue gain (FV Greater CV), reported on OCI
  
  • If previous loss, reported on I/S

Question 6

Impairment

Answer 6

Recorded by first reducing any revaluation surplus to zero with further losses on I/S

Question 7

Cost of Land

Answer 7

No depreciation,

ALL COSTS INCURED UP TO EXCAVATION
- Purchase price, brokers commissions, title and recording fees, legal fess, draining swamps, clearing of brush and trees, site development, existing obligations, costs of razing, less proceeds from sale (increase, sale things)

Question 8

Land Improvements

Answer 8

are DEPRECIABLE, have useful life
- Fences, water systems, sidewalks, paving, landscaping, lighting

Includes interest costs

Question 9

Plant - Cost

Answer 9

Cost of excavation, digging foundation, forward

Cost of plant or buildings include:

• Purchase price
• All repair charges
• Alterations and improvements
• Architects fees
• Possible addition of construction

Question 10

Basket Purchase

Answer 10

Allocate purchase price based on the ration of appraised values

Question 11

Equipment

Answer 11

Machinery, fixtures, fixtures and factory equipment

Includes ALL expenditures

• Invoice price
• less discounts
• freight in
• installation
• sales tax

Question 12

Capitalize vs Expense

Answer 12

Capitalize

• Additions
• Improvements, Replacements

Replacement
-If have cv of old assets, recognize gain / loss
- if cv is unknown, extend assets life, debit AD
- Dr. AD
Cr. Cash / AP

Ordinary repairs = expensed
Extraordinary repair = capitalized

Question 13

Fixed Assets Constructed by a Company

Answer 13

Costs to Capitalize

• Direct materials and direct labor
• Repairs and maintenance that add value
• Overhead direct items
• Construction period interest

Question 14

Capitalization of Interest Costs for Fixed Assets Constructed by a Company

Answer 14

Use weighted average of accumulated expenditures as part of the cost of producing fixed assets (not amount borrowed)

• interest rate on excess expenditures (weighted average)
• Not to exceed actual interest costs
• Do not reduce capitalizable interest

Question 15

Capitalization of Interest Period

Answer 15

Three conditions “During time of construction”:

• Expenditures for the asset have been made
• Activities necessary to get asset ready for intended use
• Interest cost is being incurred

Stops during intentional delays but continues for ordinary delays (inspection, strike)

Ends when asset is “substantially complete”

Question 16

Disclose in F/S

Answer 16

• Total interest cost incurred during the period

- Capitalized interest cost for the period