Chapter FAR 4 - Capitalize costs on Land equipment machine interest Flashcards Preview

FAR CPA Review - (Becker, Roger, Wiley CPA Excel, NINJA) > Chapter FAR 4 - Capitalize costs on Land equipment machine interest > Flashcards

Flashcards in Chapter FAR 4 - Capitalize costs on Land equipment machine interest Deck (17):
1

What's get added and/or subtracted to Land Cost

Land Cost =

Purchase cost of land
+ Broker comissions fee
+ Titlee fees
+ Recording fees
+ Draining swamps costs/fees
+ Clearing bush fees
+ Clearing trees costs/fees
+ Site development costs (on the land only, not construct building)
+ Existing obligations (i.e. mortgage and BACK TAXES)
+ Cost of razing/tearing down old building
- Sale on scrap metal from tearing down old building, timber, etc.

2

What's included to the cost of equipment (balance sheet item; capitalized equipment?

Equipment cost =

Invoice price
- Cash discounts
+ Freight-IN COSTS
+ Installation costs
+ Preparation cost
+ Testing costs
+ Sale tax
+ Excise tax
+ Possible additions on construction period interest

3

How to capitalized borrowed interest or interest on loan?

Pick the smaller of:

Total interest incurred (add up all the interests incurred from different debts and borrowings)

or

Avoidable interest i.e. Interest computed on weighted average amount of accumulated expenditures for the building during the year.

4

What are the accounting rules in recording

"improvement" and "replacement" on asset?

When you know the carrying value on damaged portion of asset:
(1) Must remove the old asset (i.e. sell it)
(2) Record Loss or Gain on this sale of old asset

Then, capitalize the cost on
>> Refurbishing costs on new asset (reconstruction / replace asset)

5

Are interest costs that incurred before or after the construction of an asset (building, ship, machine, equipment)

are expense or capitalized?

They're expensed.

6

Are interest costs that incur DURING construction of asset (building, ship, machine, equipment, vehicle)

are expense or capitalized?

They're capitalized

7

How to find cost of building when the CPA question only reports a combined $$ purchase and obligation Mortgage on both land and building?

First:

Cash purchase
+ mortgage obligation
-------------------
= Combined cost for both land and building
x % ratio to building
--------------------
= $$ costs of the building

Do not use the $$ assessed value of property done for realty tax purposes. But do use the % stated in the CPA exam question.

8

What is the capitalized cost of an equipment when you have, for example:

Paid 4,000 down payment
18,000 note payable issued
w/ 6,000 payment for three years
And interest rate = 8%

Shipping charges = 2,000
Installation charges = 3,500

PV factor ordinary annuity for 3 years at 8% = 2.58
PV Factor future single sum for 3 years at 8% = .735

Cash down payment
+ PV not payable ordinary annuity on payments
+ Shipping charges
+ installation charges
--------------------
= Equipment cost

$4,000 down payment
+ 15,480 PV note payable (or $6,000 x 2.58)
+ 2,000 shipping charges
+ 3,500 installation charges
-------------
= $24,980 equipment cost

9

IFRS

How to calculate the impairment loss on the revaluation value of a building?

Exampany company has asset
This Asset has fair value = 2,700,000
W/ revaluation gain = 200,000

This assets carry value = 2,295,000
Recoverable amount = 2,000,000

Recoverable amount
- Current carrying value
-------------------
= Revaluation loss to OCI to reduce any OCI revaluation gain

Revaluation loss
- OCI revaluation gain
---------------------------
= Any revaluation gain left over be in OCI

or

If there's a loss, go to Income statement.

Example:
2,000,000 recoverable amount
- 2,295,000 carry value
-----------------
= 295,000 loss revaluation to OCI to reduce any OCI gain

295,000 loss revalulation
- 200,000 OCI gain (from previous period)
----------
= $95,000 realized loss >> go to Income statement

10

IFRS

What's the revaluation gain/loss formula?

Example: Revaluation on asset

Historical cost = $500,000
Accumulated depreciation = $140,000
Fair value = $420,000

Revaluation gain (loss)

Fair value - (Historical cost - accumulated depreciation)
= revaluation gain or revaluation loss

$420,000 fair value - ($500,000 - $140,000)
= $420,000 fair value - $360,000
= $60,000 revaluation gain (reported to OCI)

11

Revaluation gain reports to ___

Any revaluation loss reports to ___ to reduce OCI gain and any loss left over are reported to ____ statement.

If reported revaluation loss and OCI has no revaluation gain, then revaluation loss goes to _____ statement.

Revaluation gain reports to OCI

Any revaluation loss reports to OCI to reduce any OCI gain and any loss left over are reported to INCOME statement.

If reported revaluation loss and OCI has no revaluation gain, then revaluation loss goes to income statement.

12

IFRS

Definition of investment property

Investment property not include what properties

Initial costs include

What are the costs capitalized to carrying value of investment property?

Investment property = buildings or land held under finance (capital) lease
It's for earn rental income
It's for capital appreciation

Investment property not include what properties:
* Owner-occupied property
* Property held for sale during ordinary business period
* Under constructed/developed property used for business operations (not for investment purposes)

Initial costs include:
* Purchase price
* Expenses involved with purchase: legal services, professional fees, property transfer taxes, and other taxes

Capitalize costs to carrying value:
* Costs add to the property
* Costs to replace pat of property
* Costs to service property

13

IFRS - investment property

What costs are not capitalized but are expensed?

Day-to-day service, repairs, maintenance, labor and minor parts

14

IFRS investment property

What are the two methods to measure investment property

Fair value

Cost model

15

IFRS - investment property

Cost model, what is it?

Cost model (IFRS - investment property):

On balance sheet, investment property is reported at

Historical cost MINUS accumulated depreciation.
(or Historical cost less accumulated depreciation)

Must DISCLOSE fair value

16

IFRS - investment property

Fair value model, what is it?

Fair value model (IFRS - investment property):

On balance sheet, investment property is reported at

Fair value (no minus accumulated depreciation)

Determine fair value on best evidence:
>> Best evidence = Current prices in active market for similar property in SAME LOCATION AND SAME CONDITION.

If use this method:
>> Must use this consistently on the investment property UTNIL investment property is disposed/sold or no longer classified as investment proeprth

17

IFRS - investment property

Fair value model - gains and losses

Fair value model (IFRS - investment property):

(1) Always revalue the investment property to be sure carry value is not different from fair value

(2) Gain or loss in changing in fair value in investment property = Recognize this gain or loss in earnings (income statement) in period the change in FV occurred.

Decks in FAR CPA Review - (Becker, Roger, Wiley CPA Excel, NINJA) Class (61):