PP & E Flashcards
Land is the only PPE that doesn’t?
Depreciate
Are Land improvements depreciated?
Yes
Natural Resources
are depletable assets
Costs that are capitalized
- Costs to get asset ready for use: sales tax, cost set up and test equip, title fees, attorney fees, costs on building any construction
- Costs to extend useful life of an asset or improve productivity (efficiency): additions, improvements, significant replacements and rearrangements
Avoidable Interest
if the construction expenditures had not taken place the firm could have avoided the interest
int rate Xavg acc expenditures
Conditions for interest to be capitalized
- interest has to be incurred
- construction activities are taking place
- construction expenditures are occurring
Average Accumulated Expenditures (AAE)
total expenditures during the construction period, debt that could’ve been avoided
Expenditure
cost that maintain the asset so that it’s services can be used over it’s orig est useful life, is recognized on IS
Capitalize
cost that is included in the value of an asset
Modifications
improvements, replacements or rearrangements
Accounting approaches for post acquisition
substitution, increase basis of larger asset, debit to accum depreciation
Substitution (Accounting approaches for post acquisition)
remove old asset and accum dep, recognize loss and capitalize new cost
Increase Basis of larger asset (Accounting approaches for post acquisition)
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
Debit to Accumulated Depreciation (Accounting approaches for post acquisition)
used when expenditure increases useful life
Depreciable cost
orig cost - salvage value
Salvage Value
value to be received when asset is no longer in use, assets CANNOT be depreciated under salvage value
Straight Line (depreciation method)
(Cost - salvage) / # yrs of life
Service hours method (depreciation method)
[(Cost - salvage) / total service hours] X hours used
Units of Output (depreciation method)
[(Cost - salvage) / total units] X units produced
Sum of the years digits (Accelerated depreciation method)
[# years remaining X (cost - salvage)] / sum of the years
sum of the yrs of 4 yrs = 1+2+3+4 = 10 yrs
Double Declining Method (Accelerated depreciation method)
Straight line method X 2 (or 1.5 if that is stated) do not subtract salvage value when computing straight line
Natural resources
noncurrent assets that contain costs associated with acquisition, exploration and development of a natural resource deposit
Classification of Impaired Assets
- assets held are in use
- assets held for disposal (sale)
- assets to be disposed other than sale (abandonment, spinoff to shareholders, exchange for other assets
