Fixed Assets

Question 1

What costs are capitalized for fixed assets?

Answer 1

All costs getting ready for its intended use:

1. Purchase price
2. Legal fees
3. Delinquent taxes
4. Title insurance
5. Freight-in
6. Installation
7. Test runs
8. Sales taxes

Question 2

What costs are capitalized for land?

Answer 2

1. Purchase price - including existing building to be demolished
2. Surveying
3. Clearing, grading, landscaping
4. Cost of razing or demolishing old building
5. Subtract proceeds from sale of scrap

Question 3

When do you capitalize interest?

Answer 3

If asset is constructed for company’s own use

Question 4

When do you not capitalize interest?

Answer 4

Costs incurred after construction is complete

Inventory manufactured in normal course of business

Question 5

How do you capitalize interest?

Answer 5

Weighted Average Accumulated Expenditures x Interest Rate = Capitalized Portion of Interest
Cannot exceed actual interest paid

Question 6

What is the formula for depletion expense?

Answer 6

Depletion Base/Total Volume x Units Extracted

Depletion Base = Cost + Additional Costs - Salvage/Residual Value

Question 7

What is formula for Units of Production depreciation?

Answer 7

(Cost - SV) x Hours this Year/Total Hours

Question 8

What is formula for DDB depreciation?

Answer 8

Cost x DDB rate

Subsequent years = CV x DDB rate

Question 9

What is formula for SYD depreciation?

Answer 9

(Cost - SV) X #Years Left/Sum of Years in Asset Life

Denominator = n(n+1)/2

Question 10

What is formula for S/L depreciation?

Answer 10

(Cost - SV) / Useful Life

Question 11

What is process for determining impairment loss for Assets Held for Use?

Answer 11

Expected Future Cash Flow less than CV = Impairment

CV - FV = Impairment Loss

Question 12

What is process for determining impairment loss for Assets Held for Sale?

Answer 12

1. Reclassify to Other Assets at the Lower of CV and NRV
2. Record loss in I/S under Continuing Operations
3. Do not depreciate
4. Can write back up

Question 13

How is exchange with commercial substance recorded?

Answer 13

Recognize all gains and losses
Record in this order:
1. FMV given up + cash paid (- cash received)
2. FMV of asset received
3. BV given up + cash paid (- cash received)

Question 14

How is exchange without commercial substance recorded?

Answer 14

Recognize all losses
Defer all gains EXCEPT when boot received
Record at lower of:
1. FMV given up + cash paid (- cash received)
2. FMV of asset received
3. BV given up + cash paid (- cash received)

Question 15

What is formula for gain on boot received?

Answer 15

Total boot received/Total consideration received
Multiply ratio by gain to determine amount to recognize
If boot received >=25% of total consideration received, recognize all of gain

Question 16

When is an asset classified as Held for Sale?

Answer 16

If it meets all of the following:

1. Actively looking for a buyer
2. Sale is probable within 12 months
3. Property is immediately available
4. Sales price is reasonable

Question 17

What indicates the need to test for impairment?

Answer 17

1. Significant decrease in the asset market value
2. Significant change in asset’s physical condition or manner in which it used
3. Costs significantly greater than expected
4. Projection of continuing losses associated with asset
5. Disposal before end of useful life is more likely than not

Question 18

How is accretion expense calculated?

Answer 18

Adjusted interest rate x FV of liability