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 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.
Is building demolition included in cost of land?
NO
Costs included in land
Legal fees, commissions, title, insurance, surveying, grading, filling , draining
Int Capitalization Rule
Take lesser of:
Implicit borrowing rate or
Weighted average rate
SL Dep Method Caculation
Cos-salvage/N
N=useful life
DDB Method
Double the rate from SL
No salvage
SYD
N(N+1)/2= denominator
NUmberator= useful year, reduced by one each year
Calculate salvage value
Dep Disclosure Requirements
Dep Exp for Period
Balance of major asset class
AD by major asset class
Description of Methods
Examples of intangibles
Patents, Copyrights, Trademarks, Licenses
Treatment of useful life of intangibles
Finite-amortize over life
Infinte- no amortize, test for impairment
How to determine impairment of asset
If EFC<FV to write down
Cannot be recovered
Non Mon Transaction: FV Determinable
Use FV of asset received and given, remove AD
Non Mon Transaction: Lacks Commercial Substance
Use BV instead of FV
Non Mon w/ Comm Substance
If cash distributed, recognize gain
What is commericial substance?
Confirguation of CF will be different
What is R&D costs?
Lab reserach for further knowledge
Deisgn of possible products
What is not R&D?
Quality Control
Enginerring follow up
Routine ongoing efforts
Seasonal design changes
