FAR PP&E

Question 1

How do we treat interest incurred while constructing a Fixed Asset

Answer 1

Interest incurred during the construction period of a FA should be capitalized as part of the historic cost of acquiring the FA. The interest cost on FA subsequent to the construction period as well as all interest costs on the routine manufacture of the machinery for sale to customers (inventory) should be expensed in the income statement for the period.

Question 2

How do we determine interest cost to capitalize on a construction

Answer 2

Capitalized interest cost equals the SMALLER of the Total interest incurred or the avoidable interest ie interest on the weighted average amount of accumulated expenditure). (SFAS 34 para. 12-15

Question 3

How do you treat revaluation gain or loss under the IFRS revaluation model?

Answer 3

Under IFRS revaluation model, the reversal of revaluation is recognized in profit or loss.

Question 4

What are the main depreciation method

Answer 4

1. Straight line
2. Sum of digits ie N(N+1)/2
3. Double declining

Question 5

How do we calculate the depletion rate of an asset such as a mine site recently purchased

Answer 5

The depletion rate will be
(Purchase price + Dev Cost + Cost to restore the land to its original - Estimated future sales price of the asset) / Estimated Tonnes to be produced over the life of the asset

Question 6

Which depreciation method ignores the salvage value in its calculation?

Answer 6

The double-declining method

Question 7

What is the treatment of depreciation of a depreciable property constructed on a leased land

Answer 7

Depreciation life will be the shorter of the life of the property and the term of the lease