Property, Plant, & Equipment

Question 1

When does depreciation start for an asset

Answer 1

When it is put into service

Question 2

How do you value an asset when it is held for sale

Answer 2

At net realizable value, not historical cost anymore

Question 3

Costs included in land

Answer 3

• Purchase Price including existing building to be demolished
• broker commissions
• title & recording fees
• surveying charges
• existing obligations like mortgage or delinquent taxes
• cost incurred to demolish old building
• DEDUCT any SCRAP costs

Question 4

Costs included in buildings

Answer 4

• purchase price
• alterations & improvement costs
• architect fees
• repair charges neglected by previous owner
• capitalized interest during construction before occupancy begins

Question 5

Costs included in equipment

Answer 5

• purchase price: invoice price less any discounts
• freight-in, installation, and test runs
• sales & excise taxes
• legal fees, delinquent taxes, title insurance, and surveying costs
• capitalized interest if self developed

Question 6

Issuing Debt to acquire PP&E

Answer 6

Debt Issuance costs are not included is cost

Question 7

J/E for issuing a note to purchase an asset with cash

Answer 7

Asset

• —-Cash
• —-Note Payable

Question 8

How much interest can be capitalized for PP&E

Answer 8

The lesser or actual or avoidable interest

Question 9

Average Accumulated Expenditures - Weighted Average

Answer 9

• A firm begins construction on January 1 by making a $40,000 construction payment to a contractor. On July 1, another $40,000 payment is made.
• AAE = $40,000 + $40,000(6/12) = $60,000.

Question 10

Average Accumulated Expenditures - Simple Average

Answer 10

• Assume small discrete payments made throughout the year for $180,000 were paid
• AAE = Average of beginning & ending costs (0 + 180,000)/2 = 90,000

Question 11

End of year entry for interest construction

Answer 11

Construction in Progress

———-Interest Expense

Question 12

Interest to be capitalized with weighted average

Answer 12

1. ) Find Average Accumulated Expenditures(AAE)
2. )Add up all the debt outstanding
3. )Multiply each debt instrument by interest rate and add up
4. )Divide sum of interest by sum of debt outstanding & then multiply by AAE

Question 13

Interest to be capitalized with specific method

Answer 13

1. ) Find Average Accumulated Expenditures(AAE)
2. )Add up all the debt outstanding not related to construction
3. )Multiply each debt instrument not related to construction by interest rate and add up
4. )Divide sum of interest by sum of debt outstanding
5. )Multiply construction portion by interest rate
6. )Subtract construction portion from AAE then multiply that number by nonconstruction rate
7. )Add construction and nonconstruction totals

Question 14

Nonaccelerated Depreciation Methods

Answer 14

• Units of Output: (Cost − Salvage Value) / (Useful Life in Units of Production)
• Service hours method: (Cost − Salvage Value) / (Useful Life in Service Hours)

Question 15

COGS Depletion

Answer 15

1. ) Add all successful efforts expenses and divide by estimated tons to be removed
2. ) Divide that by actual tons removed

Question 16

Depletion Recognized

Answer 16

1. ) Add total of all expenses(Exclude success) and divide by estimated tons to be removed
2. ) Divide that by actual tons removed

Question 17

Recovery of assets value when in use and held for sale

Answer 17

• When asset is in use recovery is not allowed
• Held for sale its is allowed, but cannot exceed original amount
• IFRS allows it either way*

Question 18

What is the recoverable amount for IFRS

Answer 18

The greater of FV less cost to sell or value in use

Question 19

IFRS Recovery of Assets using Revaluation

Answer 19

The recovery up to the original amount is record profit or loss and the amount that goes past it is a surplus is is considered other comprehensive income

Question 20

What does commercial Substance mean

Answer 20

New asset will be different from old asset or the use of the new asset is different than that of the old asset

Question 21

Commercial Substance - FV can’t be determined

Answer 21

• no gain or loss is recognized

- new asset is recorded at BV of old asset plus or minus any cash paid or received

Question 22

Commercial Substance - If cash is paid

Answer 22

FV of New asset = FV of old asset plus cash

Question 23

Commercial Substance - If cash is received

Answer 23

FV of New asset = FV of old asset minus cash

Question 24

Commercial Substance - If FV is given in the problem

Answer 24

Don’t worry about rules, record new asset at its GIVEN FV

Question 25

Commercial Substance - Exchange made to facilitate sales

Answer 25

No gain or loss is recorded

Question 26

No Commercial Substance - Meaning

Answer 26

Assets being exchanged are the same

Question 27

No Commercial Substance - Cash is paid

Answer 27

You don’t recognize a gain when you pay cash

Question 28

No Commercial Substance - Cash Received (<25%)

Answer 28

1. ) Divide Cash Received by the FV of the New Asset
2. ) If less than 25%, multiply by gain and record that number as gain
3. ) Plug in FV

Question 29

No Commercial Substance - Cash Received (>25%)

Answer 29

1. ) Divide Cash Received by the FV of the New Asset

2. )If greater then record the full gain

Question 30

IFRS accounting for PP&E

Answer 30

May elect the cost model the revaluation model on any ASSET CLASS

Question 31

Investment Properties Depreciation

Answer 31

No depreciation is recognized