Property Plant & Equip Flashcards
Plant Asset-3 requirements
- Currently in operations
- Useful life more than one yr past balance sheet date
- physical substance
Held for investment or future development is excluded due to no current productive asset
Categories w/in Plant Assets
- Plant & Equip: Buildings, Machinery, Equip-finite useful like and depreciable
- Land Improvements: Parking lots, fencing, external lighting, some landscaping-finite useful life and depreciable
- Land: Plot of land where constructed facilities specifically related to primary business operations is- indefinite life so not depreciable–real estate held for investment NOT included
- Natural Resources: Gravel pit, coal min, tract of timber, land, oil well-depletable assets
Capitalized Cost to PP&E
- Estimated time of benefit only related to current accting period recorded as expense ( revenue expenditures/period costs)
- Estimated time benefit current & future accting periods, expenditure capitalized
- If immaterial acct for expenditure in most expedient way (expenditure recorded as expense in period of acquisition
- If material accting treatment expenditure be determined by examining estimated time of benefit
What does capitalized mean
Included in asset acct
Costs to Capitalize
Cash equivalent price (negotiated acquisition cost) and “get ready” costs (setting up/testing new machine-costs to get assets to company an ready for use)
How to acct for plant assets
pg 254
How should plant assets be valued
Market value of consideration given in exchange OR market value of assets acquired (whichever is more readily determinable & reliable
Methods of Acquiring Plant Assets
- Cash Purchase: Chase pd
- Deferred Pmt Plan (credit purchase): PV future cash pmts using market rate interest similar assets
- Issuance of Securities: acquisition cost of asset acquired thru issuance of stocks/bonds FMV of security OR FMV of asset acquired
- Donated Assets: Recorded at FMV, revenue/gain also recorded
- Group Purchases: Total price is allocated to individual assets acquired
Three Conditions required to capitalize interest
- Qualified expenditures have been made (cash pmt, transfers of other assets, NOT short-term noninterest-bearing debt)
- Activities necessary to get assets read for intended use are in progress
- Interest cost is being incurred
Average Accumulated Expenditures (AAE)
measure of amt of debt, on annual basis, that could have been avoided
Capitalized Interest on Land
- Land for Building Site: Cost of land included in AAE for building, Interest capitalized to building
- Land Developed for Sale: Interest capitalized to land
- Land held for speculation: No interest capitalized because land is in condition of use and no asset under construction
Capitalized Interest Disclosure
Amt of interest capitalized and expensed must be disclosed during period which interest is capitalized.
Capitalize Post-Acquisition Expenditures if
- Makes asset more productive
2. Extends useful life
How to depreciate Additions to post-acquitition expenditures
- If integral part of bigger asset depreciate addition over shorter of its useful life or remaining useful life of larger asset
- If not integral part depreciate over its useful life
How to account for post acquisiton expenditure
- Remove Accumulated dep and original cost of old component, recognize loss and capitalize new expenditure to larger asset (available only if records of old components cost and acc depreciation were kept)
- Increase larger asset acct by post acq cost (used when productivity of larger assets is enhanced)
- Debit Accum Dep- (used when increase of useful life of larger asset-suited for extraordinary repairs)
