Fixed Assets Flashcards
What determines if expenditures are expensed or capitalized for equipment?
Include all expenditures to get the asset into working condition and ready for use.
What types of costs are capitalized for equipment?
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 efficiency of these assets are capitalized.
How are R&D costs related to equipment treated?
They are expensed in the period incurred and NOT capitalized.
How are expenditures related to buildings treated?
Includes all expenditures to get the asset into “working condition” and ready for use
How are expenditures related to land treated?
Includes all expenditures to get the land ready for its intended use
○ Title & County Fees
○ Clearing of Land - Dirt Work, etc.
○ Demolition and Removal of Buildings (minus any scrap or salvage)
What does it mean when a transaction lacks commercial substance?
Cash flows are not different; new asset value = book value of old asset.
Only gain recognized is any boot ( cash) received from the transaction.
What does it mean when a transaction has commercial substance?
Cash flows are different; new asset value = fair value of old asset;
When a transaction is an “arms length” deal, does it have or lack commercial substance.
It has commercial substance and it is valued at fair value.
How is donated property recorded?
Donee- recorded at fair value plus costs associated with getting property into working condition
Donor- recorded at fair value of asset given up; gain/loss recorded.
What is the formula for double-declining balance
= 1/useful life x 2 x book value
Which type(s) of depreciation ignores salvage value?
Double Declining Balance
When an asset that is being depreciated via DDB drops below straight line value, what happens?
You stop using DDB and switch to straight line to fully depreciate the asset
What is the formula for sum of year’s digits?
= remaining useful life / (sum of year’s digits)
i.e. a 10 year useful life looks like this in year 3:
8 / (10+9+8+…2+1) = 8/55
What is the formula for straight line depreciation?
= 1 / useful life
When is an asset imparied?
When the undiscounted future cash flows < carrying value.
How is impairment loss calculated?
Impairment loss = carrying value - fair value
Can impaired assets recover their value after they have been written down? (GAAP)
No, once an item has been written down, it cannot be written back up.
What costs are amortized related to patents?
Legal fees to successfully defend a patent are amortized over the patent’s economic life.
What level is goodwill tested at?
Goodwill is tested at the Reporting Unit, but not at the entity level.
How are software expenses treated before technological feasibility?
They are expensed as research and development
How are software expenses treated after feasibility but prior to production?
They are capitalized
How are software expenses treated that are incurred during production?
The expenses go to inventory.
How are software expenses treated that are for training on internal use software?
They are expensed.
