Fixed Assets Flashcards
What expenditures are included in the cost of equipment?
purchase $ + liabilities (shipping, tax, insurance, installation, testing, legal fees & construction loan interest.
Any alterations to existing facilities or equipment necessary for the new purchase & installation that extend the LIFE or increase the efficiency of these assets are CAPITALIZED.
How are R&D costs recorded?
They are expensed in the period incurred and are not capitalized
Which expenditures are included in the cost of a building?
All expenditures to get the building into “working condition” & ready for use
Which expenditures are included in the cost of land?
All expenditures to get the land ready for its intended use: title & county fees, clearing of land - dirt work, etc. Demolition & removal of old buildings (minus any scrap/salvage). Note: capitalized land costs are NOT depreciated.
In an exchange of non-monetary assets, how much gain is recognized if no additional cash is exchanged when there is no significant difference in resulting cash flow?
If resulting cash flows are not significantly different, no G/L is recognized, as it lacks commercial substance. The new asset is recorded at the BV of the asset given up. The only gain that can be recognized is any boot (cash) received.
In an exchange of non-monetary assets, what GAIN is recognized if resulting cash flows are significantly different?
If resulting cash flows are significantly different - the transaction has commercial substance and a G/L is recorded on the exchange. The new asset is recorded at the FV of the assets given up, unless the asset acquired has a FV that is easier to determine.
How is donated property recorded by the donee?
Recorded at FV + costs associated with getting the property into working condition for its designed purpose. If FV is indeterminable, use Book Value
How is donation of property recorded by the donor?
Recorded at FV of asset given up. G/L is recorded.
How is double-declining balance (DDB) depreciation calculated?
1 / (Useful Life x 2 x BV) Ignore Salvage
How is Sum of Years Digits (SYD) depreciation calculated?
(Cost - Salvage) x (Remaining Useful Life / SYD) = Depreciation Expense.
How is Straight Line depreciation calculated?
(Cost - Salvage) / Useful Life = Depreciation Expense
When is an asset considered to be impaired? How is impairment calculated?
When the un-discounted future cash flows are LESS than the carrying value of the asset.
Carrying Value - Fair Value = Impairment Loss
(can’t be written back up once impaired)
How are legal fees to defend a patent amortized?
If the patent is successfully defended, the legal fees are amortized over the patent’s economic life. If unsuccessful - expense immediately.
What are the two steps for testing goodwill impairment?
Compare the CV to the FV. If FV is greater than CV - no impairment exists. If it exists, the assets and liabilities should be compared to the total value of the reporting unit. The difference is Goodwill.
Compare this amount to the CV of the Goodwill and write it down accordingly.
How are costs for developing software recorded?
Expenses prior to technological feasibility are expenses as R&D.
After technological feasibility, but prior to production - costs are capitalized.
Expenses incurred during production are charged to inventory.
Expenses incurred training on internal use software are expensed.
