Fixed Assets Flashcards
What are acquisition costs
Not only include the purchase price of the assets but also include the assets for its intended use. Purchase Price legal fees delinquent taxes Title Insurance Transportation Freight In Installation Test runs Sales Taxes
Cost of Land
Purchase Price Surveying Clearing Grading and Landscaping Cost of Razing or demolishing less-proceeds from sale of any scrap
Lump sum purchases
Releative fair value method
ARO
Asset Retirement Obligation- ASC 410. It is called as estimated restoration costs to be paid at the end of life usage.
LIablity will have to be increased based on discount rate and reported as accretion expense.
Accretion expense
ARO liablity
Capitalization of interest
Asc 835- Interest borrowed from bank need to be capitalized to the part that it was borrowed for the building. For Ex., if we are borrowing 1,000,000 from banj and using it for construction this year 600,000 and next year 400,000 then WIP will be calculated for the amount used to built that year other portion of the amount will be charged to interest exp.
Building WIP
Interest exp
Cash
Calculate WIP only if
Construct for companys own use
Asset manufactured for resale of special order
Do Not Capitalize Interest if
Costs are incurred after completion of construction
Inventory manufactured in the ordinary course of business.
Normal Repairs and Maintenance
Income Statement
If it makes asset Bigger, Better and Longer
Capital expenditure
Refurbishment-Replace a part of asset
Account as if sold the old part and replacing it with a new part
Accumulated Depreciation
Loss
asset
Asset
Cash
Not Identifiable-
Enhances the asset- Asset Cash Increasing the asset useful life Accumulated depreciation cash
various depreciation mehods
Straight Line Method- Cost-salvage/useful life
Sum of the year Digits- Cost-salvage valuex(#No.of year in asset’s life/ Sum of years in assets life =depreciation expense N(N+1)/2 then this becomes denominator. no.of years
Double Declining Balance- Don’t have a salvage
UOP-Units of production
Cost-Sv= Hours this year/Total Number of years
When not to recover impairment
For assets held for use
Loss of Impairment Journal entry
Loss of impairment
Acuumulated depreciation
What are the two step process in Impairment
Carrying value>expected future cash flows= Impairment Loss . Then in next step calculate amount
Carrying value>Fair Value
Non-Monetary Exchanges
Are recognized at fair value
Exchanges with commercial substance
FMV Given up+ cash paid(-Cash Received)
FMV of asset received
BV Given up + cash paid(-cash received)
Recognize all gains and losses
Exchanges without commercial substance
FMV Given up +cash paid-cash received
FMV of asset received
Book value given up +cash paid-cash received
Defer all gains Recognize all losses unless boot is received
If the gain is above or 25% recognize gain
Funky Formulae to recognize gain if it was more than 25%
Cash/FMV. For the exchange lacking commercial substance . Subtract FMV from net book value received it the boot received is less than 25% calculate the proportionate gain.
when to use implicit rate
if it is both lower and known use implicit rate
Assets under IFRS
Cost Model, Revaluation Model
Test for impairment
c.v> net recoverable amount we have an impairment loss.
where revaluation profit or loss goes to
If it is cost model it goes to profit or loss
If it is revaluation model it goes to OCI-R as in DENT-R
If you are paying boot
If you are receiving boot
Record all losses defer all gains
Record all losses and recognize gains upto the proportionate share of the boot received
Always hit the old asset for the cost value
delinquent realestate
goes to land
What is the difference between composite and group assets
Both composite and group depreciation use the straight-line method. Both methods aggregate groups of assets. The composite method is used for a collection of dissimilar assets with varying useful lives, whereas the group method deals with similar assets. Each method involves the calculation of a total depreciable cost for all the assets included in one account and of a weighted-average estimated useful life.
A company using the composite depreciation method for its fleet of trucks, cars, and campers retired one of its trucks and received cash from a salvage company. The net carrying amount of these composite asset accounts was decreased by the
Because both composite and group methods use weighted averages of useful lives and depreciation rates, early and late retirements are expected to offset each other. Consequently, gains and losses on retirements of single assets are treated as adjustments of accumulated depreciation. The entry is to credit the asset at cost, debit cash for any proceeds received, and debit accumulated depreciation for the difference. Thus, the net carrying amount of the composite asset accounts is decreased by the amount of cash received. The net carrying amount of total assets is unchanged.
how to depreciate under IFRS
Under IFRS, each part of an item with a cost significant to the total cost must be depreciated separately. The engine and the seats are considered significant to the total cost and thus should be depreciated separately. The company uses straight-line depreciation, and the bus has no residual value. Therefore, the depreciation expense for the engine is $2,500 ($25,000 ÷ 10 years), for the seats is $1,250 ($10,000 ÷ 8 years), and for the rest of the bus is $3,250 [($100,000 – $25,000 – $10,000) ÷ 20 years]. The total depreciation expense the company should recognize for the bus for the year ended December 31, Year 1, is $7,000 ($2,500 + $1,250 + $3,250).
Non monetary exchange gain or loss
Correct C.
$0
D.
$(1,000)
You are correct, the answer is C.
FASB ASC 845-10-30-1 specifies that the accounting for nonmonetary exchanges generally should be accounted for based on fair values, which is the same basis as that used for monetary transactions. FASB ASC 845-10-30-3 provides three exception cases in which a nonmonetary exchange should be recorded based on the recorded amount (book value) of the assets surrendered:
- Fair value is not determinable.
- Exchange transaction is to facilitate sales for customers.
- Exchange transaction lacks commercial substance.
In Beam’s case, exception 2 is met. The exchange of the inventory is to facilitate sales to Beam’s customers. The exchange should be recorded based on carrying amounts with no gain recognized. If the inventory’s carrying amount had been in excess of the fair value of the inventory given up, the inventory given up should have been written down and the loss recognized before the exchange was recorded.
