Fixed Assets

Question 1

Characteristics

Answer 1

used in operations and are not for resale so not inventory

long term in nature and depreciation

substance so you can touch it

Question 2

can be shown separately in the b/s or in notes

Answer 2

land(property)

buildings (plant)

equipment

acc dep

Question 3

basis of purchased fixed assets

Answer 3

US GAAP
historical cost

cost - acc dep - impairment

Question 4

historical cost

Answer 4

basis for valuation of fixed assets: cash or cash equ (payments over time so promissory note; stock issued; notes) price of obtaining the asset + bringing it to location for intended use

Question 5

basis

Answer 5

inventory: lcm
a/r: nrv
fixed assets:nbv

Question 6

nbv

Answer 6

cost-acc dep

Question 7

acc dep

Answer 7

contra assets; can be combined for two or mroe categories

Question 8

donated fixed assets

Answer 8

bill gates donates a building for his company to use

recorded at fmv + incidental costs occured

donated fixed assets result in the recognition of a gain on the income statement

dont credit cash because you are not paying for it

dr. fixed asset
cr. gain on nonreciprocal transfer (unusual or infrequent -> gift)

Question 9

IFRS Valuation

Answer 9

initially recognized at the cost to acquire the asset

subsequent to acquisition fixed assets can be valued at cost or revalutation

Question 10

cost

Answer 10

JUST LIKE US GAAP:

historical cost - acc dep - impairment

Question 11

revaluation model

IFRS Only

Class

Answer 11

1) class of fixed assets is revalued to fair value
2) then reported at fair value - acc dep - impairment

must be made frequently throughout the year to make sure that the carrying amount does not drastically differ from fair value at the end of the reporting period; if fair value differs materially from carrying value further revaluation required

revaluation model carrying value = fair value at revaluation date - subsequent accumulated dep - sub impairment

must be applied to all items in a class of fixed assets and not to an individual fixed asset

Question 12

when assets reported at revaluated value

Answer 12

historical cost - acc dep - impairment must be disclosed

Question 13

revaluation losses

Answer 13

income statement

1) if fair value < carrying value before revaluation) = loss on i/s
2) if loss is reversing a previously recognized revaluation gain, OCI

AND

reduced revaluation surplus in ACOCI

Question 14

Revaluation gains

Answer 14

1) fv > carrying value before revaluation

then OCI AND AOCI as revaluation surplus

2) if reverses previously recognized revaluation loss -> that portion in I/S

Question 15

Impairment

Answer 15

if revalued fixed assets sub. become impaired then

1) reduce any revaluation surplus to 0 if you had previously recognized a gain
2) any excess impairment loss reported on the i/s

Question 16

asset class

Answer 16

land and building, machinery, equipment, etc

Question 17

Example! F4-36

Answer 17

cannot net classes against each other

if in the last one impairment of equipment by 400 then first 300 take out of oci adn then remain 100 you report as a loss on i/s

Question 18

cost of equipment

Answer 18

office equipment, machinery, furniture, fixtures, factory equipment

CAPITALIZE
invoice price - cash and other discounts + (freight in and insurance while in transit and construction; installment charges (cost to rearrange); sales and federal excise tax, construction period interest)

Question 19

capitalize or expense

Answer 19

based on the purpose of disbursements

Question 20

additions CAPITALIZE

Answer 20

increase the quantity of fixed assets

dr. assets
cr. cash/a/p

Question 21

improvement and replacement

CAPITALIZE

Answer 21

improvement -> betterment
replacement -> new similar asset sub. for old asset

1) if carrying value of old asset is known, remove it and replace it with the new cost and recognize any gain or loss.

Question 22

carrying value of old asset is unknown

Answer 22

1) if life is extended -> increase nbv -> reduce acc dep

dr. accu dep
cr. cash/a/p

2) if the usefulness or utlitilty of the asset is increased as a result; capitalize the cost of the improvement to the asset account

Question 23

repairs

Answer 23

expensed

Question 24

extraordinary repairs

Answer 24

capitalize (treat it as an addition, improvement, or replacement as appropriate)

Question 25

Summary!

Answer 25

F4-37

Question 26

Cost of Land

Answer 26

ALL COST UPTO EXCAVATION (digging of the land for the foundation of building and after that will be under building)

purchase price
broker’s commission
title and recording fees
legal fees; draining swamps; filling in or leveling; site development etc; assume existing obligations like mortgages, back taxes, etc; cost of tearing down an old building

LESS: proceeds from sale of existing building, standing timber etc. if the old building is knocked down and then the scrap metal etc. is sold that is less

Question 27

land improvements

Answer 27

Depreciable

Fences, water systems, sidewalks, paving, landscaping, lighting etc.

Question 28

interest costs

Answer 28

interest costs during construction period added to cost of land improvement

Question 29

cost of building

excavation forward

Answer 29

purchase price + (repair charges ignored by previous owner so deferred improvements, alterations and improvements, architect’s fees, possible addition of construction period interest)

Question 30

Land cost

Answer 30

till filling in a hole or levelling

Question 31

building cost

Answer 31

digging a hole for foundation

Question 32

basket purchase of land and building

Answer 32

ratio ->allocate purchase price based on the ratio of the appraised values of individual items

Question 33

investment property

IFRS only in GAAP part of PPE

Answer 33

building held to to earn rentals or to flip it so sell it for more

includes property under construction or development for future use as investment property

DOES NOT INCLUDE: owner occupied prop; prop held for sale in ord course of business; property being constructed or developed unless it is for use as investment property in the future

Question 34

cost

Answer 34

purchase price + expenses directly related to purchase so legal, professional fees, prop transfer taxes, other taxes

Question 35

capitalize

Answer 35

costs to sub. add to the property

to replace part of the property

to service the prop

Question 36

expense

Answer 36

day to day servicing, repairs, maint cost, labor and minor parts; expensed in the period occurred

Question 37

cost model

Answer 37

initially reported at cost or revaluation

hist cost - acc dep

should also disclose fv of investment

Question 38

fv model

Answer 38

*** investment reported at FV and NOT DEPRECIATED

reflects market price

Once adopted must be applied consistently until the asset is disposed or can no longer be classified as investment property

Question 39

when is it not investment prop

Answer 39

owner occupied; developed for sale under ordinary course of business

Question 40

gain or loss arising from change in fv of investment prop

Answer 40

** recognized in earnings earnings in the period in which it occurs

Question 41

fixed assets constructed by a company

Answer 41

im going to build my own building

direct material and labor; r&m expenses that add value to the fixed asset; overhead including direct overhead like idle plan capacity; **construction period interest; NOT profit

Question 42

capitalization of interest costs- based on weighted average accumulated expenditures

Answer 42

Is an exception as interest is generally expensed as incurred but in this case it is capitalized as a cost of producing fixed assets (buildings and ppe; fixed assets intended for sale lease or discrete project; land improvements)

Question 43

do not capitalize interest cost -> expense

Answer 43

1) if youre borrowing money to buy inventory
2) if youre borrowing money to construct inventory
3) before construction or after
4) if you’re waiting for market to improve or if there is an INTENTIONAL delay in construction

Question 44

can capitalize interest cost

Answer 44

when you’re borrowing money to construct a building for use in your business- a factory, warehouse, office building

2) can capitalize during construction period only
3) capitalize interest cost during ordinary delays in construction - waiting for some kind of permit, inspection before you can proceed

Question 45

computing capitalized cost

Answer 45

not amount borrowed -> amount of interest you can capitalize is based on the amount of money you’ve paid for materials, labor, overhead = based on average amount of accumulate expenditures

i dont care about the amount of money that you borrowed

Question 46

interest rate on borrowings

Answer 46

use rate on construction loan if the loan is specifically for asset construction -> just do the interest rate * accumulated expenditures

*capitalized expenditure during the construction period only

Question 47

if you dont have a specific construction loan

Answer 47

using general debt

if youre using various sources -> general weighted interest rate * expenditure

Question 48

interest cap

Answer 48

actual interest you can capitalize can NEVER exceed the actual interest cost

Question 49

problem on f4-42

Answer 49

1) upto actual interest cost is capitalized
2) rem is expensed
3) can expense remainder of actual interest costs

Question 50

capitalization of interest period

Answer 50

during period of construction

building decisions have been made and architectures hired

activities necessary to get assets ready for intended use are in progress -> permits filed

if you’re actually incurring interest costs

Question 51

Summary!!

Answer 51

borrowed funds that are not used:
expense always

borrowed funds (weighted average acc expense) -> capitalize during construction; expense after construction

expenditures above amount borrowed (weighted avg interest rate): capitalize during construction; expense after construction