PP&E Flashcards
Capitalizing
Debit asset
credit cash
acquisition costs and any other costs needed to get the asset ready for use can be capitalized
Lump Sum Purchases
use the relative fair market value approach
Use fv to allocate purchase price accordingly to land building etc
Asset Retirement Obligation
estimated restoration costs or other costs expected to be paid at the end of the period of usage should be recored at fav as a liability or future value of the cost if fav isn’t known
Capitalization of interest
capitalize interest during construction periods because this is something you could have avoided if you didn’t build the building
Capitalize Interest If…
Asset is for your own use
or
asset is special ordered and then sold
Amount of Interest to be capitalized
Weighted avg of accumulated expenditures x interest rate
never to exceed actual interest cost
Repairs/Maintenance
cost to keep asset at its normal working condition are expensed
Bigger Better Longer
If you do something to the asset that makes it bigger/better/longer than capitalize those costs
Bigger
additions, new capacity, new functions
dr asset
cr cash
Better
improving efficiency or replacing a wood floor with concrete floor
dr asset
cr cash
Longer
extension of the assets useful life
these costs are subtracted from accumulated depreciation therefore increasing the carrying value
dr acc depr
cr cash
product cost
capitalize the cost and then expense later
period cost
expense the cost
Straight Line Depreciation
Cost-Salvage/useful life=depreciation expense
Sum of Years Digits
cost-salvage value X # of years remaining/N(N+1)/2=depreciation expense
N=useful life years remaining
Double Declining Balance
Cost X (1/years X 2) = depreciation
Ignore salvage value
Units of Production
Cost- salvage X units this year/total estimated units
Impairment of ppe
Future cash flows from asset is less than carrying value=you have impairment
Carrying amount-fair value of asset=amount of impairment
Disposal of assets
debit cash debit loss (plug) debit accumulated depreciation credit asset credit gain (plug)
Non-Monetary Echange
record at fair value
commercial substance
as if we sold the asset and we just got another one
recognize all gains and losses
record new asset at
FMV given up +/- cash
or FMV of asset received
or Book Value given up +/- cash
lacking commercial substance
dealing with a competitor or someone you don’t normally deal with
Defer gains until the product received is sold (oil) unless you get boot
Recognize all losses
Record new at the lower of the 3 below:
FMV given up +/- cash
FMV of asset received
Book Value given up +/- cash
