Fixed Assets Flashcards

2
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

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 are capitalized.

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3
Q

How are Research and Development costs recorded?

A

They are expensed in the period incurred and are not capitalized.

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4
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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5
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)

Note: capitalized land costs are not depreciated

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6
Q

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 flows?

A

If the cash flows from the assets exchanged are not significantly different no gain or loss is recognized on a non-monetary exchange as it lacks commercial substance.

The new asset is recorded at the book value of the asset given up.

The only gain that can be recognized is any boot (cash) received.

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7
Q

In an exchange of non-monetary assets what gain is recognized if resulting cash flows are significantly different?

A

If resulting cash flows are significantly different then the transaction has commercial substance and a gain/loss is recorded on the exchange.

The new asset is recorded at the FAIR VALUE of the assets given up unless the asset acquired has a fair value that is easier to determine.

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8
Q

How is donated property recorded by the donee?

A

Recorded at Fair Value + costs associated with getting the property into working condition for its designed purpose

Exam Tip - Think of a charity holding a “fair” and then donating the property which is then recorded at “fair value”

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9
Q

How is donation of property recorded by the donor?

A

Recorded at Fair Value of asset given up.

Gain or Loss is recorded.

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10
Q

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

A

1 / (Useful Life x 2 x Book Value)
BV = cost - AD
Ignore salvage value.

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11
Q

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

A

(Cost - Salvage Value) x (Remaining Useful Life / SYD) = Depreciation expense
SYD = (n(n+1)/2

4 yr life (4+3+2+1 = 10)

  1. 4/10 * (cost - SV)
  2. 3/10 * (cost - SV)
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12
Q

How is straight line depreciation calculated?

A

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

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13
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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14
Q

How are legal fees to defend a patent amortized?

A

If the patent is SUCCESSFULLY defended the legal fees are amortized over the patent’s economic life.

If unsuccessful they are expensed immediately.

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15
Q

What are the two steps for testing goodwill impairment?

A

Compare the CV to the FV. If FV is greater than CV no impairment exists you’re done.

If impairment appears to exist 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.

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16
Q

How are costs for developing software recorded?

A

Expenses prior to technological feasibility are expensed 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.

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17
Q

How is units of production depreciation calculated?

A
  1. Rate per unit or hour = (Cost-SV)/est units or hrs

2. Dep exp = rate * units of prod (or hours worked)

18
Q

Test for Recoverability (GAAP)

A

If sum of undisc expected CF is less than carrying amt, impairment loss needs to be recognized

19
Q

Depletion

A
1. Depletion base
   Cost to purchase property
   \+ development cost to prep land for extraction
   \+ estimated restoration costs
    (residual value after extraction)
2. Unit depletion
    Depletion base/estimated recoverable units
3. Yearly depletion
     Unit depletion * units extracted 
4. Depletion to be incl in COGS
     Unit depletion * units sold
20
Q

Leasehold improvement

A

Am over remaining lease term or improvement life, whichever shorter

21
Q

Write down of inventory

A
  • when written down, reduced CV = new cost
  • restoration if impairment NOT recognized
    • written down amt = p/l
    • amt over written down amt = OCI
  • revaluation increase = revaluation surplus
  • revaluation decrease = loss (dec op inc)
22
Q

Group depreciation

A

SL to group of similar assets

23
Q

Composite depreciation

A

SL to group of dissimilar assets