FAR 4-4: Depreciable Assets & Depreciation Flashcards
Give examples of costs to be capitalized as land.
- Acquisition price
- Closing costs, such as RE broker commissions, legal fees, escrow fees, title guarantee insurance
- Any mortgages, liens, or encumbrances on the land which the buyer assumes
- Preparation costs, such as surveying costs, leveling costs, tree removal
- Cost of razing an existing building, in getting land into condition for intended use
- Improvements with indefinite life
- Less: Proceeds from sale of assets on land
NOTE: Excavating costs for a building & cost of improvements with a definite life are not included in land.
How is investment property defined & reported under IFRS?
Investment Property: Land and/or buildings held to earn rental income or for capital appreciation is reported using one of two methods:
- Cost Model: Carrying Value = Historical Cost - A/D
- FV Model: Reported at FV & NOT depreciated. Gains & losses from FV adjustments are reported on the I/S
State 2 rules concerning capitalizing interest.
*Only capitalize interest on money actually spent, not on amt borrowed
*The amt of capitalized interest is the lower of:
>Actual interest cost incurred, or
>Computed capitalized interest (avoidable interest)
For capitalizing interest, when does the capitalization period begin?
Begins when 3 conditions are met:
- 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
Ends when the asset is substantially complete & ready for its intended use.
Name the most common depreciation methods. Give the basic formula for calculating each method.
*Straight-line:
(Cost - Salvage) / useful life
*Sum-of-the-Years’ Digits:
Sum of years = n (n+1) / 2
(Cost - Salvage) X (Years remaining) / (Sum of years)
*Double-Declining Balance:
2 X Straight-line rate X net book value of asset (no allowance for salvage value)
*Units of Production:
(Cost - Salvage) / estimated hours X actual hours for period
Explain the different approaches to depreciation under IFRS & GAAP.
Under IFRS, the depreciation method used should match the expected pattern of fixed asset consumption. (Not req’d under GAAP.)
Under IFRS, component depreciation is req’d. (Not req’d under GAAP.)
State the rules for computing depletion on natural resources.
> > > Remember it is REAL property.«<
Residual value (subtract)
Extraction/development cost
Anticipated restoration cost
Land purchase price
[(Cost of land+Extraction development costs+Anticipated restoration costs-Residual value)/Estimated recoverable units] X Units extracted = Depletion
