Property Plant & Equipment

Question 1

Financing costs

Answer 1

Financing costs like debt issuance are not included in the price of PP&E

Question 2

How much interest can be capitalized

Answer 2

The lesser or actual interest or avoidable interest

Question 3

What value should you use for PP&E when given questions about fire damage & insurance or impairments

Answer 3

Use the historical or carrying value plus any other costs because PP&E is recorded on the books at historical cost

Question 4

Commercial substance meaning

Answer 4

The assets exchanged are different and this is the easy one to calculate

Question 5

Commercial substance if FV can’t be determined

Answer 5

Use book value plus or minus cash and you don’t record a gain or loss

Question 6

No Commercial Substance meaning

Answer 6

The assets are the same and this is the more complicated one

Question 7

No commercial substance rules

Answer 7

• if there is a loss record a loss
• if there is a gain and cash is paid then you don’t record a gain and you use BV to calculate value of new asset
• when there is a gain with the 25% rule you divide the cash received by FV of asset received plus cash. If it’s less than 25% you record that % of gain and if it’s more than 25% you record the full gain.

Question 8

Specific Method of Capitalization

Answer 8

Decrease the construction loan from the AAE then find the weighted average of the non construction loans and multiply by the decrease in AAE. Multiply out the interest for the construction loan and add the other shit.