PP & E

Question 1

Land is the only PPE that doesn’t?

Answer 1

Depreciate

Question 2

Are Land improvements depreciated?

Answer 2

Yes

Question 3

Natural Resources

Answer 3

are depletable assets

Question 4

Costs that are capitalized

Answer 4

1. Costs to get asset ready for use: sales tax, cost set up and test equip, title fees, attorney fees, costs on building any construction
2. Costs to extend useful life of an asset or improve productivity (efficiency): additions, improvements, significant replacements and rearrangements

Question 5

Avoidable Interest

Answer 5

if the construction expenditures had not taken place the firm could have avoided the interest
int rate Xavg acc expenditures

Question 6

Conditions for interest to be capitalized

Answer 6

1. interest has to be incurred
2. construction activities are taking place
3. construction expenditures are occurring

Question 7

Average Accumulated Expenditures (AAE)

Answer 7

total expenditures during the construction period, debt that could’ve been avoided

Question 8

Expenditure

Answer 8

cost that maintain the asset so that it’s services can be used over it’s orig est useful life, is recognized on IS

Question 9

Capitalize

Answer 9

cost that is included in the value of an asset

Question 10

Modifications

Answer 10

improvements, replacements or rearrangements

Question 11

Accounting approaches for post acquisition

Answer 11

substitution, increase basis of larger asset, debit to accum depreciation

Question 12

Substitution (Accounting approaches for post acquisition)

Answer 12

remove old asset and accum dep, recognize loss and capitalize new cost

Question 13

Increase Basis of larger asset (Accounting approaches for post acquisition)

Answer 13

increase cost to larger asset used when productivity vs useful life is enhanced or when accounting system doesn’t have details to remove old components

Question 14

Debit to Accumulated Depreciation (Accounting approaches for post acquisition)

Answer 14

used when expenditure increases useful life

Question 15

Depreciable cost

Answer 15

orig cost - salvage value

Question 16

Salvage Value

Answer 16

value to be received when asset is no longer in use, assets CANNOT be depreciated under salvage value

Question 17

Straight Line (depreciation method)

Answer 17

(Cost - salvage) / # yrs of life

Question 18

Service hours method (depreciation method)

Answer 18

[(Cost - salvage) / total service hours] X hours used

Question 19

Units of Output (depreciation method)

Answer 19

[(Cost - salvage) / total units] X units produced

Question 20

Sum of the years digits (Accelerated depreciation method)

Answer 20

[# years remaining X (cost - salvage)] / sum of the years

sum of the yrs of 4 yrs = 1+2+3+4 = 10 yrs

Question 21

Double Declining Method (Accelerated depreciation method)

Answer 21

Straight line method X 2 (or 1.5 if that is stated) do not subtract salvage value when computing straight line

Question 22

Natural resources

Answer 22

noncurrent assets that contain costs associated with acquisition, exploration and development of a natural resource deposit

Question 23

Classification of Impaired Assets

Answer 23

1. assets held are in use
2. assets held for disposal (sale)
3. assets to be disposed other than sale (abandonment, spinoff to shareholders, exchange for other assets