PPE Flashcards
required disclosure for PPE
useful life, dep methods, and accumulated dep of plant asset
requirement for asset to be a plant asset
- currently used in operations
- life extending more than 1 yr
- have physical substance
asset held for sale is reported..
net realizable value
criterion for capitalizing costs:
- increase in useful life
2. increase in productivity or efficiency including cost reduction
gains/losses on sale of assets is part of:
continuing operations
general rule for classifying an expenditure
necessary to bring the asset to its intended condition and location
includes: shipping, installation, testing, insurance, legal fees, title guarantees
are net demolition costs (demolition- salvage value) included in land or building
land because it is a cost required to prepare the land for its eventual use.
what are land improvements
have finite life and is depreciated. example: parking lots, fencing, land scraping
what are natural resources
should be expensed. not capitalized or depreciated. example: gravel pit, coal mines
when asset lacks commercial substance how is it recorded
book value plus land given plus boot given
donated assets are recorded at
fair market value
weighted average method:
capitalize interest using weighted average rate on all interest bearing debt.
example; 6,000,000 face value, 8% interest
8,000,000 face value, 9% interest
6x.08=.48
8x.09=.72
14 1.2
1.2/14=8.57%
interest curing construction in assets constructed for a firms own use is capitalized until..
construction is complete. thus only the interest incurred after completion is expensed
interest is capitalized on the construction of assets for sale if..
the assets are large, individual, discrete projects, such as ships and real estate development
specific method..
capitalize interest on specific consruction loan first then if needed, capitalize interest on all other debt based on average interst rate for that debt.
example: 6%, 60,000 loan
4%, 90,000 payable
6%, 90,000 payable
.06(60,000)+.05(AAE-60,000)
capitalized interst is limited to the interest that would have been avoided had the construction not occured
this is the amount of interest based on AAE
calculation of net equipment
net equip 2004+equip purchases-book value of equip sold+depreciation exp+net equip 2005
double declining balance calculation
twice straight line methods or 2/useful life. and no salvage value
example: dep 2004= 240,000(2/10)=48,000
dep 2005=(240-48)(2/10)=38,000
what is the successful efforts method and what is the best association
capitalize only costs of exploration efforts that locate resources. association: asset
what is the full costing method and what is the best association
capitalize all costs. successful and unsuccessful. association: matching
calculate COGS under succesful exploration method
acquisition+exploration costs+development costs that divided by total tons that times tons removed in 1 yr = depletion \+additional extraction costs =COGS
under IFRS where are increases and decreases in FV recorded
increases in an assets fair value aboive original cost are recorded in a revaluation surplus account.
decreases in FV below original cost are recorded as a loss to income statement
what are components under IFRS accounting for PPE
- estimated useful life and depreciation method reviewed annually
- component depreciation required EX) building components depreciated separately
- PPE can be revalued to fair value . but it must apply to entire call or components of PPE
- interest earned on construction funds can offset the interest costs.
