M4 - PP&E: Cost Basis Flashcards
Any cost incurred to acquire and make ready a plant asset is capitalized. (true or false)
true
Capitalized interest = the smaller of what
The
total interest incurred (i.e. incurred interest & interest on other borrowings)
or
the avoidable interest (the interest on the weighted-average amount of accumulated expenditures)
The cost of the machine should include all costs that are reasonable and necessary to get the asset in the condition or location for its intended use. (true or false)
true
When a building is damaged and the carrying value of the damaged portion of the building is known and is uninsured, the component method is used and a loss in the amount of the carrying value of the damaged portion of the building must be recognized. What should happen to the refurbishing costs?
They would create a new asset (reconstructed building) and must be capitalized.
If the refurbishing costs of a damaged uninsured building were material subsequent costs to acquisition of the asset and the refurbishment would extend the life of the asset, what should the owner do?
Reduce the accumulated depreciation equal to the costs of refurbishing.
Interest costs incurred “during the construction period” of machinery to be used by a firm as a fixed asset, should be CAPITALIZED as a part of the historic costs of acquiring the fixed asset on the BALANCE SHEET. (true or false)
True
Interest costs on the fixed asset “subsequent to the construction period” as well as all interest costs of the routine manufacture of machinery for sale to customers (inventory) should be EXPENSED in the INCOME STATEMENT for the period incurred. (true or false)
true
The cost of equipment includes all expenditures related directly to the acquisition or construction including invoice price less cash discounts and other discounts, freight-in, installation charges and sales and Federal Excise Taxes. Costs include all costs necessary to get the asset to its proper place, at the intended time and in condition for its intended use. (true or false)
True.
Leasehold improvements are capitalized and then amortized over the (lesser or greater) of the life of the improvements or the remaining term of the lease?
lesser,
the leasehold improvement costs should thus be expensed over that time frame.
This rule makes sense because the party making the leasehold improvements will benefit from the improvements for either the life of the improvements or the lease if the term of the lease is shorter than the life of the improvements (in which case, somebody else will benefit from the improvements for the remaining life of the improvements)
Are excavation costs included in the cost of the land?
No it is a cost incurred to construct a building that must be included in the total building cost.
True or false: Not all note payables are required to be reported at the present value of the payments to be made, computed using the market rate of interest.
False
Under IFRS regarding the revaluation model, revaluation can be performed on individual fixed assets only or on classes of assets. (true or false)
false, Under IFRS, an individual fixed asset is revalued, then the entire class of fixed assets to which that asset belongs must be revalued. Individual assets cannot be revalued alone.
Interest should only be capitalized in connection with a “discrete manufacturing activity,” so interest incurred to acquire land should be expensed when incurred. (true or false)
true
Under GAAP and IFRS should freight cost and interest costs be capitalized as part of PP&E?
Freight cost should, interest costs incurred to finance the purchase should be expensed immediately.
