Fixed Assets Flashcards
How are Research and Development costs recorded?
They are expensed in the period incurred and are not capitalized.
Which expenditures are included in the cost of a building?
All expenditures to get the building into working condition are ready for use
Which expenditures are included in the cost of land?
All expenditures to get the land ready for its intended use: Title & County Fees Clearing of Land - Dirt work etc. Demolition and removal of old buildings (minus any scrap or salvage) Note: capitalized land costs are not depreciated
In an exchange of non-monetary assets how much gain is recognized if no additional cash is exchanged when there is no significant difference in resulting cash flows?
If the cash flows from the assets exchanged are not significantly different no gain or loss is recognized on a non-monetary exchange as it lacks commercial substance. The new asset is recorded at the book value of the asset given up. The only gain that can be recognized is any boot (cash) received.
In an exchange of non-monetary assets what gain is recognized if resulting cash flows are significantly different?
If resulting cash flows are significantly different then the transaction has commercial substance and a gain/loss is recorded on the exchange. The new asset is recorded at the FAIR VALUE of the assets given up unless the asset acquired has a fair value that is easier to determine.
How is donated property recorded by the donee?
Recorded at Fair Value + costs associated with getting the property into working condition for its designed purpose Exam Tip - Think of a charity holding afair and then donating the property which is then recorded atfair value
How is donation of property recorded by the donor?
Recorded at Fair Value of asset given up. Gain or Loss is recorded.
How is double-declining balance (DDB) depreciation calculated?
1 / (Useful Life x 2 x Book Value) Ignore salvage value.
How is Sum of Year’s Digits (SYD) depreciation calculated?
(Cost - Salvage Value) x (Remaining Useful Life / SYD) : Depreciation expense For example the depreciation factor for the third year of a 10-year asset would be: : 8 / (10+9+8+7+6+5+4+3+2+1) : 8/55 : 14.5% Remaining useful life : 8 SYD : 55
How is straight line depreciation calculated?
(Cost - Salvage Value) / Useful life : depreciation expense
When is an asset considered to be impaired? How is impairment loss calculated?
When the un-discounted future cash flows are less than the carrying value of the asset. Carrying Value - Fair Value : Impairment Loss Note: impaired assets that recover their value can’t be written back up once written down
How are legal fees to defend a patent amortized?
If the patent is SUCCESSFULLY defended the legal fees are amortized over the patent’s economic life. If unsuccessful they are expensed immediately.
What are the two steps for testing goodwill impairment?
Compare the CV to the FV. If FV is greater than CV no impairment exists you’re done. If impairment appears to exist the assets and liabilities should be compared to the total value of the reporting unit. The difference is Goodwill. Compare this amount to the CV of the Goodwill and write it down accordingly.
How are costs for developing software recorded?
Expenses prior to technological feasibility are expensed as R&D. After technological feasibility but prior to production costs are capitalized. Expenses incurred during production are charged to inventory. Expenses incurred training on internal use software are expensed.
What expenditures are included in the cost of equipment?
All expenditures to get the asset into working condition and ready for use: Purchase price + liabilities assumed Shipping Taxes Insurance Installation Testing Legal fees Construction loan interest Any alterations to existing facilities or equipment necessary for the new purchase and installation that extend the life or increase the efficiency of these assets are capitalized.
How are fixed assets valued under IFRS?
Initially recognized at cost. After acquisition either the cost method or the revaluation method may be used.
How is fixed-asset carrying value computed under U.S. GAAP and IFRS?
GAAP: Historical cost
( Accum. Depreciation)
_ ( Impairment)_
= Carrying Value
IFRS: Use GAAP method (above) or the revaluation model:
Fair value on revaluation date
(Subsequent Accum. Depreciation)
(Subsequent Impairment)
= Revaluation model carrying value
- Revaluation gains reported in OCI (unless reversing a previously recognized revaluation loss, then I/S)
- Revaluation losses reported on the income statement (unless reversing a previously recognized revaluation gain, then OCI)
What is composite depreciation? What is component depreciation?
Composite depreciation: group depreciation
- depreciate class of assets over average economic life.
- No gain or loss recognized when one asset of the group is sold or retired
Component depreciation: individual depreciation
- depreciate individual identifiable pieces of a fixed asset or group of assets
- required under IFRS
