FAR-PP&E Flashcards
In transactions with commercial substance, how are gain and loses recognized?
All gains and losses.
In transactions lacking commercial substance, the asset is recorded at the lower of
o FMV given up + Cash Paid – cash received
o FMV of asset received
o BV of asset given up + cash paid – cash received
In transactions with commercial substance, the new asset book value is determined in what order
- FMV given up + Cash Paid – cash received
- FMV of asset received
- BV of asset given up + cash paid – cash received
If know #1, use it as the debit to the new asset. If #1 not known, use #2, etc
In a transaction lacking commercial substance where boot is received, what is the formula to recognize gain?
FMV Received Add: Boot Received Equals: Total Consideration Less: BV given up Total*(Boot Received/Total Consideration) = Gain
What is the formula for Sum of Years Digits?
What is the formula to find the sum of years?
Years Left of Life/Sum of Years
Sum of years can be found using the formula ((n(n+1))/2
With Double-Declining Balance Depreciation, what value of the asset is used to calculate the depreciation?
The carrying value.
What is the formula for the Units of Production method of depreciation?
(Cost – Salvage Value) * (Units Used / Total Estimated Units) = Depreciation Expense
What is the rule for replacing a part on an asset, and what is the rule for a refurbishment?
If Indentifiable, treat as if old asset is sold for a loss and a new asset is purchased.
If unintentifiable, use same ‘bigger, better, longer’ rules for capitalization or reduction of accumulated depreciation.
What is the Relative Fair Market Value Method?
Purchases that include both Land and Building use the Relative Fair Value Method. This is simply a process where the accountant finds the fair market value of the land and building through something like a tax appraisal, and then allocates the cost of land and building.
How are Asset Retirement Obligations (AROs) accounted for?
- Recorded as a liability at FMV OR
- Recorded as a liability at the PV of the estimated future FMV of the restoration costs. The liability is then increases each year with the effective interest method while debiting accretion expense.
What is included in the price of land?
- Purchase Price
- Surveying
- Clearing, grading, landscaping
- Cost of razing or demolishing old building
- Proceeds from scrap are subtracted
- Street and Water Line Assessments
What costs are included in the purchase of buildings?
- Purchase Price
- Reconditioning costs
- Commissions
What is included in capitalized interest
Interest rate incurred for any debt specifically incurred for funds used on the project.
Weighted-average interest rate from all other enterprise borrowings regardless of the use of funds.
If the construction period covers more than one fiscal period, accumulated expenditures include prior years’ capitalized interest.
The maximum interest that can be capitalized is the total interest accrued for the year.
How are gains and losses treated in transactions lacking commercial substance?
Recognize all losses and defer all gains, unless boot is received.
For the CPA exam, it is assumed that transactions have commercial substance unless otherwise stated. What phrases/information would indicate that a transaction lacks commercial substance?
The fair value of the assets received/relinquished cannot be determined within a reasonable limit
The exchange is made purely to facilitate the sale of the product to a party that is not a party of the exchange
Question specifically says that the transaction lacks commercial substance
