PP&E Flashcards
avoidable interest
Interest that may be capitalized on a qualifying asset is the avoidable interest, which is the interest that could have been avoided if the qualifying asset had not been acquired, manufactured, or constructed.
depreciation under IFRS
each component of an asset is depreciated separately.
interest that can be capitalized
Interest may be capitalized on assets constructed for a company’s own use. The amount to be capitalized is based on WEIGHTED AVG accumulated expenditures related to the asset. When that amount exceeds the interest on debt that is directly related to the asset, interest on other debt may be capitalized as well. When the weighted average is lower than directly related debt, however, only a portion of the interest on that debt is capitalized.
weighted average expenditures
add up loans during year, divide by # of loans
take this amount and multiply by interest rate to get amount of interest that can be capitalized for the current year.
how to write down asset that’s been impaired
When a long-lived asset is impaired, which is when the carrying value EXCEEDS its fair value, the asset is written down to its recoverable amount, which is the greater of its net realizable value or its value in use, which is the present value of expected future cash flows from the continued use and ultimate disposal of the asset
what can be capitalized
- Freight charges paid for goods held for resale.
- Capitalized Costs incurred in getting an asset ready for its intended use are capitalized. - In-transit insurance on goods held for resale purchased F.O.B. shipping point.
- Costs incurred in getting an asset ready for its intended use are capitalized.
goodwill
Goodwill represents the excess of the fair value of a reporting unit over the fair value of its underlying net identifiable assets.
commercial substance
In a nonmonetary exchange with commercial substance, all gains or losses must be recognized.
This transaction has commercial substance because it will result in improved future cash flows for both companies.
cost that are capitalized
Costs that improve property, making it BETTER; increase the capacity or functionality of the property, making it BIGGER; or EXTEND the useful life, making it LAST LONGER, are capitalized
if it has finite useful life, depreciate also
when does depreciation begin?
on date when put into service
when is reversal for impairment loss allowed?
Allowed for long-lived assets held for SALE
**but not for long-lived assets held for USE
how are donated assets recognized?
at fair value
increase in revenue or gain
