Module 11: Fixed Assets Flashcards
Formula to recognize gain when transaction qualifies as an exception to fair value measurement
{Boot received / (Boot Received + FMV of assets received)} X Total Gain = Gain Recognized
Land acquired in a group purchase of fixed assets
Total cost allocated based on relative fair values (current appraised value is a better indicator of FV): (FV Land / Total FV of assets purchased) X Purchase price of group assets
When should a cost be capitalized?
When a cost improves the efficiency of the asset or extends its useful life
When should a cost be expensed?
When it merely maintains the asset at its current level
Machinery is recorded at…
Historical cost, which is measured by the cash or cash equivalent price of obtaining the machine and preparing it for use
Formula to determine depreciation using the productive output method
(Current Activity output / Total Expected Activity) X Original Cost less Salvage Value
Sum-of-years’ digits (SYD) depreciation
(cost less salvage value) X (Number of years of estimated life remaining as of the beginning of the year / SYD)
where SYD = N(n+1)/2 where n=estimated useful life
Carrying amount of a fixed asset
Cost minus accumulated depreciation ( do not include salvage value!!!!)
Composite (group) Depreciation
Averages the service life of a number of property units and depreciates the group as if it were a single unit
Sum of annual SL depreciation of individual assets / Total Asset Cost
Loss on impairment
Calculated by subtracting the machines actual fair value from its carrying value at the date of impairment
When is a long lived asset considered impaired?
If the future cash flows expected to result from the use of the safety and its eventual disposition are less than the carrying value of the asset. If deemed impaired, the assets carrying value is reduced to the fair value and a loss on impairment is recognized for the difference
