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FAR > F4- Fixed Assets/Dep. > Flashcards

F4- Fixed Assets/Dep. Flashcards

1
Q

Which expenditures are included in the cost of a building?

A

All expenditures to get the building into working condition are ready for use

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2
Q

Which expenditures are included in the cost of land?

A

All expenditures to get the land ready for its intended use:

  • Title & County Fees
  • Clearing of Land - Dirt work etc.
  • Demolition and removal of old buildings (minus any scrap or salvage)
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3
Q

How is double-declining balance (DDB) depreciation calculated?

A

1 / (Useful Life x 2 x Book Value)

- Ignore salvage value.

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4
Q

How is Sum of Year’s Digits (SYD) depreciation calculated?

A

(Cost - Salvage Value) x (Remaining Useful Life / SYD) : Depreciation expense

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5
Q

How is straight line depreciation calculated?

A

(Cost - Salvage Value) / Useful life : depreciation expense

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6
Q

When is an asset considered to be impaired? How is impairment loss calculated?

A

When the un-discounted future cash flows are less than the carrying value of the asset.

Carrying Value - Fair Value : Impairment Loss

Note: impaired assets that recover their value can’t be written back up once written down

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7
Q

What expenditures are included in the cost of equipment?

A

All expenditures to get the asset into working condition and ready for use:

  • Purchase price + liabilities assumed
  • Shipping, Taxes, Insurance, Installation, Testing, Legal fees, Construction loan interest
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8
Q

Valuation of Fixed Assets

[IFRS]

A
  • Recognized at the cost to acquire the asset

- Valued using the Cost model or Revaluation Model

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9
Q

Cost Model

[IFRS]

A
  • Fixed Assets reported at Historical cost adjusted for accumulated dep. & Impariment
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10
Q

Revaluation Model

A
  • Revalued to FV & then reported at FV less subsequent Acc. Dep. & Impairment
  • Ensure that carrying amount doesn’t differ materially from FV at the end of the reporting period.
  • Must be applied to all items in a class of Fixed assets, NOT to individual fixed assets.
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11
Q

Revaluation Losses

[IFRS]

A
  • In Income Statement
  • FV< Carrying Value before Reval.
  • Unless loss reverses a previously recognized reval. gain.
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12
Q

Revaluation Gains

[IFRS]

A
  • Not on I/S on OCI

- Acc. in equity as Reval. surplus, unless the Reval. gain reverses a previously recognized Reval. loss.

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13
Q

Revaluation Model Impairment

A
  • Fixed Assets become impairment, recorded by first reducing any reval. surplus to zero with further impairment losses reported on the I.S.
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14
Q

Cost of Equipment

A
  • Include: Invoice Price
  • Less: Cash discounts
  • ADD:
    Freight-in, Installation charges,
    Sales & Federal Excise Taxes

~Possible Addition of construction period interest

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15
Q

Capitalize Costs when?

A
  • The Costs Improves the quality of fixed assets
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16
Q

Repairs: Expense/ Capitalize?

A
  • Expense: Ordinary repairs

Capitalize Extraordinary repairs:

  • Treat as addition, Improvement, or replacement.
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17
Q

Land Cost Calc.

A
  • Purchase price
  • Broker’s Commissions
  • Title & Recording Fees
  • Legal Fees
  • Mortgages & Back taxes

LESS- Proceeds from sale of existing buildings

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18
Q

Land Improvements

A
  • ARE Depreciable
  • Fences
  • Water systems
  • Sidewalks
  • Paving Landscaping
  • Lighting
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19
Q

Cost of Buildings items included

A
  • Purchase Price
  • All Repairs charges neglected by previous owner
  • Alternations & Improvements
  • Architects fees
  • Possible addition of construction period interest
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20
Q

Basket Purchase

A
  • Land & Building:

- Allocate the purchase price based on the Ratio of Appraised values of individual items.

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21
Q

Investment Property

[IFRS]

A
  • Land or Buildings held by an entity or by a lessee under a Finance Lease:
  • To earn rentals or for capital appreciation
22
Q

Investment Property Cost Model

[IFRS]

A
  • Reported on the B.S. at Historical Cost Less Acc. Dep.

- Use FV of the investment property must be disclosed.

23
Q

Investment Property Fair Value Model is Reported where?

[IFRS]

A
  • Reported on the B.S. at FV is NOT Depreciated.
24
Q

Fixed Assets Constructed by a Company: Costs include:

A
  • Direct Materials & Direct Labor
  • Repairs & Maintenance Exp. that add value to the fixed asset.
  • Overhead
  • Do Not include Profit
25
Q

Construction Period Interest

A
  • Capitalize: Interest Costs

- Based on weighted average of Acc. Expenditures as part of the cost of producing fixed assets

26
Q

Computing Capitalized Cost: Weighted average amount of Acc. Expenditures:

A
  • Applying an interest rate to the avg. amount of acc. expenditures for the qualifying asset during the period.
27
Q

Computing Capitalized Cost of Interest Rate on Borrowing:

A
  • Particular period should be used to determine the amount of interest cost to be capitalized for the period.
  • Specific new borrowing, allocated interest cost is equal to the amount of interest incurred on the new borrowing.
28
Q

Computing Capitalized Cost: Interest Rate on Excess Expenditures
(Weighted Avg)

A
  • If exceeds the amount of the related specific new borrowing:
  • Interest cost should be computed on the excess.
29
Q

Computing Capitalized Cost: Not to Exceed Actual Interest Costs

A
  • May not exceed the total interest costs actually incurred by an entity during that period.
30
Q

-Computing Capitalized Cost: Do not Reduce Capitalize Interest (2 Rules)

A
  • Rule 1: Only capitalize interest on money actually spent, not on the total amount borrowed.
  • Rule 2: The amount of Capitalized interest is the lower of:
    ~Actual interest cost incurred
    ~Computed capitalized interest (avoidable interest)
31
Q

Capitalization of Interest Period: Begins & Con’t as long as when 3 conditions are Present:

A
  • Expenditures for the asset have been made
  • Activities that are necessary to get the asset ready for its intended use are in progress.
  • Interest Cost is being incurred.
32
Q

Disclose in Financial Statements

[Capitalization of Interest Costs]

A
  • Total interest cost incurred during the period

- Capitalized interest cost of the period

33
Q

Depreciation Methods

A
  • Reasonable
  • Consistent matching of revenue & expense by systemically allocating the cost of the depreciable asset over its estimated useful life.
34
Q

Advantages of Component Dep. over Composite Dep.

A
  • More accurate because each component item would be dep. over its useful life.
  • Repair & maintenence exp. would be more accurate b/c replacements of components would be excluded.
35
Q

Component Depreciation allowed?

A
  • Not available for MACRS recovery property for tax purposes
  • B/C Dep. Exp. under the Component Method is generally higher & MACRS is already high.
  • It does appear to be available when straight-line Dep. is elected.
36
Q

Composite (Dissimilar) or

Group (Similar Asset) Depr.

A
  • Depreciating the entire class of assets over a single life.
  • Thus simplifying record keeping of assets & Depr. Calc.
  • No Gain or loss is recognized when one asset in the group is retired.
37
Q

Declining Balance

A
  • In the final year, asset is depr. to its S.Value

- No allowance is made for S.V B/c the method always leaves a remaining balance.

38
Q

Depreciation Disclosure

A
  • Depr. exp for the period
  • Balance of major classes of depr. assets by nature or function
  • Acc. Depr. allowances by classes or in total
  • Methods used, by major classes, in computing depr.
39
Q

Cost Depletion

[GAAP]

A
  • Computed by dividing the current estimated recoverable units into unrecovered cost
  • To arrive at a cost depletion rate
  • Which is multiplied by units produced to allocate the costs to production
40
Q

Percentage Depletion

[Not GAAP]

A
  • Based on % of sales; as tax deduction to encourage exploration of risky business
  • Can & usually exceed Cost Depletion
  • Limited to 50% of N.Inc. from the Depletion property computed before the Percentage Depletion allowance.
41
Q

R.E.A.L Property Computation

A
  • Residual Value- [Subtract]
  • Extraction/Development Cost
  • Anticipated restoration cost
  • Land purchase Price
42
Q

Fixed Asset Impairment

A
  • Carrying amounts of fixed assets held for use & to be disposed of need to be reviewed at least annually
  • Whenever events or changes in circumstances indicate that the carrying amount may not be recoverable
43
Q

Test for Recoverability

[US GAAP]

A
  • When Fixed Assets is tested for impairment, future cash flows expected to result from the use of the asset & its eventual disposition need to be estimated.
  • If the sum of undiscounted expected (future) cash flow is less than carrying amount,
  • An impairment loss needs to be recognized.
44
Q

Calculation of Impairment Loss

[US GAAP]

A
  • The amount by which the carrying mount exceeds the FV of the asset.
45
Q

Reporting Impairment Loss

[U.S. GAAP]

A
  • Component of income from Con’t operations before Income taxes

OR

  • Statement of Activities - related to not-for-profit entities.
  • Recognized by reducing the carrying value of the asset to its lower FV.
46
Q

Impairment Calculations: US GAAP

A
  • Determining the Impairment:
    Use undiscounted future net cash flows

Amount of the impairment:
Use FV or Discounted (PV 0future new cash flows

47
Q

If the Carrying value of old asset is KNOWN:

A
  • Remove it and recognize a gain or loss.
48
Q

If the Carrying value of old asset is UNKNOWN:

A
  • Capitalize the cost of the improvement/replacement to assets account.
49
Q

Once IFRS’s FV Model is adopted, its applied

A
  • Consistently until the asset is disposed of
    or
  • Can no longer be classified as investment property.
50
Q

Evidence for FV for the IFRS’s FV Model is?

A
  • Current prices in an active market for similar property in the same location & condition.
51
Q

-Capitalization of Interest Period: Ends when?

A
  • Asset is substantially complete & ready for the intended use.
52
Q

What expenditures are Capitalized in the cost of equipment?

A

Any alterations to existing facilities or equipment necessary for the new purchase and installation that extend the life or increase the efficiency of these assets

FAR (24 decks)

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