Valuation

Question 1

Define “cash equivalent price

Answer 1

The amount of cash paid for the asset on acquisition date

Question 2

How are donated items recorded?

Answer 2

Recorded at fair market value

Question 3

How is the price for group purchases recorded?

Answer 3

Total price is allocated to individual assets based on FMV of the individual assets acquired

Question 4

What 4 components are included in the capitalized cost of Self Constructed Assets?

Answer 4

1. ) Labor - Direct Labor chargers related to the construction of the asset including fringe benefits
2. )Material
3. ) Overhead
4. )Interest Cost incurred during the construction period

Question 5

What are the two approaches regarding the capitalization of Overhead for Self-constructed assets?

Answer 5

1. )Incremental Overhead Approach - Capitalize only incremental overhead. Ex. if a Company normally has $5 mill in overhead but during construction its 5.5, then 5 million is incremental
2. )Pro-rata overhead allocation approach - Ex. project represents 15% of the total direct labor hours for the period, then 15% of the total overhead will be allocated

Question 6

Can you capitalize interest on debt when assets are purchased outright?

Answer 6

No, only when assets are constructed

Question 7

How is the cash equivalent price in the issuance of securities determined?

Answer 7

In fair value of asset acquired or of securities issued, whichever can be most clearly determined