Valuation of PPE

Question 1

If no cash was given at consideration, how do you record the value of the asset on fair value?

Answer 1

1) Compare the value of the consideration in the exchange or the asset acquired

Question 2

Assume that an asset was purchased on credit, how do you record the asset?

Answer 2

Present value of the future cash flows using market rate of interest

Question 3

Assume that an asset was purchased through the issuance of stocks/bonds, how do you record the asset?

Answer 3

Record the asset the value of the fair value instrument or the fair value of the asset acquired, whichever is more clearly determinable.

Question 4

Is an assessed value a value that can be used for fair value?

Answer 4

No an assessed value should not be used.

Question 5

Is an appraised value a value that can be used for fair value?

Answer 5

Yes, an appraised value should be used

Question 6

If stock is closely held, should it be used to determine fair value?

Answer 6

No.

Question 7

If a company donates an asset, what is the accounting for the donor?

Answer 7

Contribution expense is the fair value of the asset donated. If the fair value is not determinable, use the carrying value which will not result in a gain or loss.

Contribution Expense DB
Accumulated Deprec DB
Computer Equipment CR
Gain or Loss DB OR CR

Question 8

If a company self-constructs an asset, what amount is capitalized?

Answer 8

1) Direct labor
2) Material
3) Overhead
4) Interest Costs

NOTE: The asset CANNOT exceed the fair value of the asset at the time it is completed. If it does exceed the fair value, you have to record a loss.