Module 11: Fixed Assets Flashcards
Impairment Loss
An impairment loss is only recognized if the carrying amount of the asset is not recoverable. The carrying value is considered not recoverable if it exceeds the sum of the expected value of the undiscounted cash flows of the asset.
Development cost can only be capitalized if they meet six (6) criteria
1) Technological feasibility of completing the asset for use or sale has been achieved;
2) the entity intends to complete and use or sell the asset;
3) the entity has the ability to use or sell the asset;
4) the entity understands how the asset will generate probable future economic benefits;
5) technical, financial, and other resources are available to complete development of the asset;
6) the entity has the ability to reliably measure the expenditures.
Composite (group) depreciation
averages the service life of a number of property units and depreciates the group as if it were a single unit. The term “group” is used when assets are similar; “composite” when they are dissimilar. The depreciation rate is the following ratio:
Sum of annual SL depreciation of individual assets / Total asset cost (depreciation base)
Development Stage Enterprises (ASC Topic 915)
ASC Topic 915 defines development stage enterprises as one devoting substantially all of its efforts to establishing a new business and (1) planned principal operations have not commenced, or (2) planned principal operations have commenced, but there has been no significant revenue.
Capitalization of Interest
Only assets which require a period of time to be prepared for use qualify for interest capitalization. The amount of interest to be capitalized is the amount which could have been avoided if the project had not been undertaken. This amount includes amortization of any discount, premium, or issue cost; but it shall not exceed the actual interest incurred during the period. The amount of “avoidable” interest is computed as follows:
Average accumulated expenditures during construction x Interest Rate x Construction period
Acquisition Cost
Fixed Assets & Tangible property
Boot
money/ cash
Capitalization Expenditures
Increase the carrying value of the asset . Are not normal, recurring expenses; they benefit the operations of more than one period. The cost of major rearrangements of assets to increase efficiency. Examples include, additions, replacements, betterments, and extraordinary repairs and maintenance.
Commercial Substance
A transaction has commercial substance if the configuration of cash flows are significantly different as a result of the exchange. The configuration of cash flows includes the risk, timing, and the amount of future cash flows.
Configuration of cash flows
…..
Depreciation
Annual charge to income for asset use during the period. Since depreciation is a non cash expense it does not provide resources for the replacement of assets. It is simply a means of spreading asset cost to periods in which the assets produce revenue.
Goodwill
….
Goodwill Impairment
…..
Impairment Loss
…..
Intangible Asset Amortization
……
Non-monetary Exchange
a reciprocal transfer wherein the transferor has no substantial continuing involvement in the asset, and the risks and rewards of ownership are transferred.
Betterment
does not extend the useful life of the asset, however makes the asset more productive and more efficient. Increase the carrying value. JE: Dr. Asset; Cr. Cash
Major Repair
Extends the useful life. Increase the carrying value. Also, makes the asset more productive and more efficient. JE = Dr. A/D and Cr. Cash
Revenue Expenditure
Treated as repair and maintenance expense. Normal, recurring expenditures. Some expenditures that meet the test for capital expenditures are expenses because they are immaterial.
Composite Depreciation
a weighted average of a group of assets - usually not similar
Group Depreciation
Use when assets are similar
Biological Assets (Agricultural Assets) - IFRS
Living animals or plants and must be disclosed as a separate item on the balance sheet. Biological assets are recognized when future economic benefits is probable, the entity controls the asset as a result of past events, and the cost or fair value can be measured reliably. Agricultural produce should be measured as fair value less costs to sell at harvest.
Investment Property - IFRS
Property held to earn rents, to earn capital appreciation, or both.
Transaction lacks commercial substance when….
a) Cash flows do NOT change in their risk, timing, and amount; AND
b) Do not include tax effects when considering the cash flows.
