PP&E

Question 1

How should interest cost incurred for the construction of PP&E to be used by the company be accounted for during and after construction?

Answer 1

1. During construction all interest should be capitalized (balance sheet)
2. After construction all interest should be expensed (P&L).

Question 2

How should interest cost incurred for the construction of PP&E for sale be accounted for during and after construction?

Answer 2

1. All interest cost should be expensed (P&L).

Question 3

What is the minimum value that a depreciable asset can be depreciated?

Answer 3

Depreciable asset can only be depreciated up to its salvage value.

Question 4

What is the formula to calculate the depreciation rate using the double declining method?

Answer 4

2 * 1 / N

N= Number of years

Question 5

What is the formula to calculate the depreciation rate using the sum-of-the-digits method?

Answer 5

N * ( N + 1 ) / 2
Example: 5 years of useful life

5 * ( 5 + 1) / 2 = 15

Question 6

How is avoidable interest calculated?

Answer 6

By multiplying the interest loan rate to weighted-average accumulated expenditure.

The avoidable interest represent the interest that could have been saved if no funds were used to finance the construction.

Avoidable interest can not exceed the actual interest incurred in the period.

Question 7

How should permanent impairment of PP&E be recorded on the financial statements?

Answer 7

1. Debit impairment loss on the P&L
2. Credit accumulated depreciation

Question 8

How reversal of impairment losses in PP&E treated for USGAAP and IFRS?

Answer 8

1. Impairment reversal are not allowed under USGAAP.
   2.Impairment reversal are allowed for USGAAP.

Question 9

Under USGAAP reversal of impairment loss for PP&E classified as “Held for Disposal” allowed?

Answer 9

1. Yes, reversal of impairment loss are allowed.

Question 10

Under U.S. GAAP what is the first step in determining if a long-lived asset is impaired ?

Answer 10

1. First perform the recoverability test by comparing the undiscounted expected future cash flows from the asset against its carrying value. If the carrying value is greater than the undiscounted expected future cash flows then there is an impairment of the asset.

Question 11

Under U.S. GAAP how is the amount of impairment loss calculated for a long lived asset determined to be impaired?

Answer 11

1. Use the Fair value or present value of future net cash to subtract the carrying amount to calculate the impairment loss.