Property, Plant and Equipment Flashcards
(54 cards)
How do land improvements differ from land?
This asset differs from land in that it has a finite useful life and is depreciated.
List the requirements for inclusion in plant assets.
- Currently used in operations;
- Have a useful life extending beyond one year;
- Have physical substance.
List some examples of natural resources.
Items such as gravel pits, coal mines, tracts of timber land, and oil wells.
List the components of capitalized costs of self-constructed assets.
- Labor
- Material
- Overhead
- Interest Cost
What is the general rule for capitalizing expenditures?
Capitalize all expenditures necessary to bring the plant asset to its intended condition and location.
List the general rules on costs to capitalize.
- Cash equivalent price
- Get ready costs
List the considerations that must be given when electing to expense or capitalize an item.
- Estimated time benefit
- Materiality
List the limitation of recorded value of self-constructed assets.
Market value at completion.
Define “get ready costs.”
All costs incurred to get the asset on the company’s premises and ready for use.
How is the cash equivalent price in the issuance of securities determined?
In fair value of asset acquired or of securities issued, whichever can be most clearly determined.
How are donated items recorded?
Recorded at fair market value.
How is the price for group purchases recorded?
Total price is allocated to individual assets.
Define “cash equivalent price.”
The amount of cash paid for the asset on acquisition date.
What are the two allowed methods to compute total interest to be capitalized?
Weighted Average Method and Specific Method.
When are unpaid construction input costs included in Average Accumulated Expenditures (AAE)?
Not until cash is paid.
Define “avoidable interest.”
The amount of interest that would have been avoided had the construction not taken place.
Define “qualifying assets” for interest capitalization.
Assets constructed for an enterprise’s own use or assets intended for sale or lease that are constructed as discrete projects.
List the conditions that must exist to capitalize interest.
- Qualifying expenditures have been made
- Construction is proceeding
- Interest cost is being incurred.
What interest rates should be used to determine capitalized interest?
Average interest rate during period or specific interest rate applicable to construction debt.
List the interest capitalization formula.
Interest Rate X Average Accumulated Expenditures
List the two-step process involved in computing capitalized interest.
(1) Compute average accumulated expenditures
2) Apply the appropriate interest rate(s
If Average Accumulated Expenditures > total interest-bearing debt, what is interest expense for the period?
The difference between total interest cost and the amount of interest capitalized.
If Average Accumulated Expenditures > total interest-bearing debt, why is there no interest expense?
All debt could have been avoided if construction had not taken place.
What is not included in Average Accumulated Expenditures until paid in cash?
Any unpaid construction input costs.
