M4 - PPE

Question 1

What amount of interest cost can be capitalized?

Answer 1

The lower of the computed capitalized interest and the actual interest cost incurred

Question 2

Land costs that can be capitalized

Answer 2

All costs incurred up to the excavation for the new building (commissions, legal fees, draining swamps, clearing brush, site development, costs of razing, less proceeds from sale of existing items)

Question 3

How are assets valued when purchased with fixed payments extending beyond a year?

Answer 3

Present value of all future payments at an imputed interest rate

Question 4

Land improvement costs that can be capitalized

Answer 4

Depreciable and include fences, water systems, sidewalks, paving, landscaping, lighting

Question 5

When can interest be capitalized in land costs?

Answer 5

Never, if incurred during construction period, should be added to cost of land improvements on weighted average
Interest should only be capitalized in connection with discrete manufacturing activity, so interest to acquire land should be expensed when incurred

Question 6

Building improvement costs that can be capitalized

Answer 6

Purchase price, all repair charges deferred by previous owner, alterations and improvements, architects fees, possible addition of construction period interest

Question 7

Accounting for an asset improvement when the carrying value of the old asset is known

Answer 7

Remove the old asset and recognize a gain/loss. Capitalize the cost of improvement to the capital account

Question 8

Accounting for an asset when the carrying amount of an old asset is unknown

Answer 8

If the assets life is extended, debit accumulated depreciation for the cost of improvement and credit cash/AP

Question 9

Depreciation expense start date for equipment

Answer 9

Installation date to capture all costs included

Question 10

How are leasehold improvement costs treated?

Answer 10

Capitalized and amortized over the lesser life of the improvements or the remaining term of the lease, to match expense with the benefits received

Question 11

What period can interest for manufacturing a facility be capitalized?

Answer 11

Begins when expenditures for asset are made, activities to get asset ready for intended use are in progress, interest cost is being incurred
Stops during intentional delays
Ends when the asset is substantially complete and ready for intended use

Question 12

Rule for capitalizing costs for a fixed asset

Answer 12

Capitalize all costs necessary to put a fixed asset in place, in the required condition at the proper time for intended use
Capitalize all costs that improve the quality, efficiency, or productive capacity of an asset