FAR 4-3: Fixed Assets

Question 1

Give some examples of capitalizable costs for:
Acquisition of equipment
Acquisition of building

Answer 1

Acquisition of equipment: Purchase price, freight-in, installation, testing, taxes, less any cash discounts allowed.*

Acquisition of building: Purchase price, deferred maintenance, alterations, improvements, architect’s fees.*

*If equipment or building is constructed by company, capitalized cost could include construction period interest

Question 2

How is fixed asset carrying value computed under U.S. GAAP and IFRS?

Answer 2

U.S. GAAP:
*Carrying Value = Historical Cost - A/D - Impairment

IFRS:

• Under IFRS, carrying value can be calc’d using the GAAP method above or can be calc’d using the revaluation model
• Revaluation Model Carrying Value = FV on Revaluation Date - Subsequent A/D - Subsequent Impairment
• Revaluation gains are reported in OCI
• Revaluation losses are reported on the I/S

Question 3

Describe the proper accounting for ordinary vs extraordinary repairs

Answer 3

Ordinary repairs are expensed as repair & maintenance. They do NOT increase the life or utility of the asset. Extraordinary repairs either increase the life or utility of the asset. If the extraordinary repair increases the life of the asset, it it recorded by reducing A/D. If the extraordinary repair increases the utility of the asset, it is capitalized to the fixed asset account.