FAR M4 - PP&E Cost Basis Flashcards
PP&E Cost Basis
PP&E
- Fixed assets
- not for resale
- physical substance, long term and subject to depreciation
PP&E Presentation
The following must be shown separately on the BS or footnotes at original cost:
- Land - no depreciation
- Buildings (plant)
- Equipment
Cost - A/D = NBV
-A/D contra asset (credit balance). May be combined for two or more asset categories.
Historical Cost
- cash or cash equivalent price to obtain the asset and bring it to the ovation and condition necessary for use
Donated Asset
- Recorded at fair market value along with incidental costs incurred.
- Donated fixed asset result in the recognition of a gain on the IS
Fixed Asset DB
Gain on non-reciprocal transfer CR
Valuation Under IFRS
- cost (just like GAAP) or revaluation (IFRS only)
Cost = historical cost - A/D - impairement
Revaluation = FV @ revalue date - subsequent A/D - subsequent impairment
Revaluation (IFRS only)
Class of fixed assets is revalued to FV and then reported at FV less subsequent A/D and impairment. Revaluations must be done frequently to ensure the carrying amount does not differe materially from FV at the end of the period. - Must be applied to all items in class of fixed assets and not to individual assets. Classes include land, building, machinery, furniture and fixtures, office equipment, etc.
Revaluation Losses
Initial revaluation losses (FV < carrying value before revaluation) are reported on the IS, unless the revaluation loss reverses a previously recognized revaluation gain. In t this situation it is recognized under other comprehensive income and reduces the revaluation surplus in accumulated OCI (off IS).
Revaluation Gains
Initial revaluation gain are reported under OCI, unless the revaluation gain reverses a previously recognized revaluation loss. In which case, it is reported on the IS to the extent that it reverses the previously recongized revaluation loss.
Impairement
- Revalued asset becomes impaired
- recorde by first reducing any revaluation surplus to zero with further impairement losses reported on the IS.
Land
- No depreciation
- Includes all costs incurred up to EXCAVATION for the new building are land costs i.e. purchase price, broker’s commission, title & recording fees, legal fees, draining of swamps, clearing of bursh and trees, filling in/leveling, existing obligations of the buyer (taxes, mortgage), demolition of building.
- Less proceeds from sale of existing buildings, timber, etc.
Land Improvements
- Items that can be depreicated
- i.e. fences, water systems, landscaping, sidewalks, paving, lighting
Plant
Cost of plant or bldgs (cost of excavation (digging foundation) forward:
- Purchase price
- All repair charges neglected by previous owners (deferred maintenance)
- Alterations/improvements
- Architect fees
- Possible addition of construction period interest
Summary of land vs. building cost
Land Cost - filling a hole or leveling
Bldg Cost - digging a hole for the foundation
Land & Bldg Purchase Allocation
Allocated purchase price based on the ratio of appraised values of individual items.
Cost of Equipment
Costs include:
- Invoice price less any discounts
- Freight in
- Installation
- Sales and Federal Taxes