Property, Plant, & Equipment Flashcards
Cost of Land
purchase price, including existing building that is to be demolished
surveying
clearing, grading, and landscaping
costs of razing or demolishing old building
proceeds from sale of any scrap (like old bricks) are subtracted from the land cost
Asset Retirement Obligations (ARO)
PV or “restoration cost” goes to a credit for “estimated restoration costs” and gets added to price of asset.
increased each year by incremental rate by debiting Accretion Expense, and debiting ARO Liability
Asset as a donation
Asset
Other Income (Contribution Revenue)Capitalize interest cost if asset is
constructed for company’s own use (built by self or outsider)
manufactured for resale resulting from a special order (ships)
DO NOT capitalize interest if
costs are incurred AFTER completion of construction
inventory manufactured in the ordinary course of business
how to find amount to be capitalized
Weighted avg accumulated expenditures AKA expense for the year
TIMES interest rate
–
this is interest on other debt that could have been avoided by repayment of debt
~Never exceed actual interest cost
this is the debit of BUILDING WIP
debit interest expense
credit cash for full interest expense
Repairs and Maintenance costs
expensed as i ncurred UNLESS it makes the asset bigger, better, or longer then it would be capitalized
bigger
additions, new capacity (hospital wing)
Asset
Cash
better
improving efficiency (betterment/improvement) such as rearrangement or improving concrete floor in place of a wooden floor
Asset
Cash
Longer
extension of an asset’s useful life (overhaul); costs that extend the useful life of the asset are subtracted from accumulated depreciation thereby increasing the carrying value
Accumulated depreciation
Cash
Refurbishment
Replace a part of the asset
Identifiable refurbishment
account for as if sold the old part and are replacing it with new part
--
accum depreciation
Loss
Asset
Asset
Cash
Not identifiable refurbishment
enhances use:
Asset
Cash
increases useful life
Accum depr
Cash
Depreciation rate
1/useful life
Accelerated Depreciation Methods
Sum of the years digits (SYD)
Double Declining Balance (DDB)
Units of Productions (UOP)
basically everything other than straight-line
Benefits:
better matching (more expense early on is good)
helps reduce loss from obsolescence
Evens out expenses due to lots of deprecation at first and almost no repairs and maintenance
Sum of the years digits
(cost - salvage)
TIMES
number of years left in assets life / n(n+1)/2
Double-Declining Balance (DDB)
Salvage value is ignoredwill never get to 0**
In the final year, reduve the carrying value to the salvage value
~switch from DDB to either SYD or S/L toward the end of the asset’s useful life, repreciating the asset to its Salvage value
YEAR 1: cost * [(1/useful life) * 2] = %
YEAR 2: cost - last years depr exp. * %
Units of Production (activity method)
based on some output
cost-salvage) * (hours/total hours
Recoverability test & Impairment loss
recoverabiltiy test: if CV > Expected future cash flows = impairment loss
Impairment loss: CV > FV = amount of loss
–
Loss on Impairment (I/S)
Accumulated Depreciation
Can an impairment loss be restored for an asset held for use?
Under GAAP - no
Under IFRS - yes
Impairment loss for held for sale(disposal)
Get rid of asset and accum depr. to set up as “other asset” aka “equipment to be disposed of”
Loss on planned disposition
Equipment to be disposed of
Accumulated depreciation
Equipment
STOP DEPRECIATING “other asset”!!!
Can an impairment loss be restored for an asset held for sale (disposal)?
Yes as long as write-up is never greater than the carrying amount of the asset before the impairment
Disposal of asset (assuming you are still using it)
Get rid of asset and accum. depr UP TO DATE OF SALE.
Cash
Accum depr
Loss
PPE
or gain
gain/loss goes in other non-operating on I/S
Nonmonetary exchange with commercial substance
Recognize ALL gains and losses
Record new asset at:
- FMV given up + cash paid (-cash received)
- FMV of asset received
- Book value (BV) given up + cash paid (-cash received)
Nonmonetary exchanging l a c k i n g commercial substance
this is when you trade with a competitor
Recognize all losses, DEFER ALL GAINS ~unless~ boot is received
record at lower of
- FMV given up +cash paid (-cash received)
- FM of asset received
- Book value (BV) given up + cash paid (-cash received)
Boot
Cash received
recognize gain up to amount of boot received:
(boot/(FV of asset received+boot) * gain
UNLESS, boot is 25% or more of total consideration i(FV of asset received+boot), the recognize the entire gain
Cost Model
Used under IFRS; used to depreciate asset to its residual value, similar to GAAP
Losses are recognized immediately in I/S profit or loss
Revaluation Model
R in “DENT-R” (revaluation adjustments); used under IFRS when Fair Value is readily determinable; the asset is periodically adjusted to its estimated fair value
impairment loss is a revaluation decrease
Under IFRS, which intangibles are required to be tested for impairment regardless of whether or not there is an indication of impairment?
Those with indefinite useful lives and those not yet ready for use by the entity
Investment property under IFRS
either use fair market value: measured at fair value at each balance sheet date with changes recognized in profit or loss; no depreciation is recorded.
Cost Model: measured at initial cost less accumulated depreciation and accumulated impairment losses; disclose fair value
Biological costs under IFRS
recognized at fair value LESS costs to sell at harvest (=NRV)
Gains and losses go to income
Component Depreciation
Depreciating significant parts seperately; used only with IFRS
Impairment loss under IFRS
CV > Net recoverable amount
Net Recoverable Amount is the larger of net selling price or value in use
Similar vs Dissimilar in IFRS
lacking commercial substance (like-kind exchange) vs has commercial substance
Formula for calculating gain with boot
FMV received \+boot received =Total consideration -book value given up =gain * (boot received/total consideration)
