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CPAExcel FAR > Property, Plant and Equipment > Flashcards

Property, Plant and Equipment Flashcards

1
Q

How do land improvements differ from land?

A

This asset differs from land in that it has a finite useful life and is depreciated.

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2
Q

List the requirements for inclusion in plant assets.

A
  • Currently used in operations;
  • Have a useful life extending beyond one year;
  • Have physical substance.
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3
Q

List some examples of natural resources.

A

Items such as gravel pits, coal mines, tracts of timber land, and oil wells.

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4
Q

List the components of capitalized costs of self-constructed assets.

A
  • Labor
  • Material
  • Overhead
  • Interest Cost
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5
Q

What is the general rule for capitalizing expenditures?

A

Capitalize all expenditures necessary to bring the plant asset to its intended condition and location.

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6
Q

List the general rules on costs to capitalize.

A
  • Cash equivalent price

- Get ready costs

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7
Q

List the considerations that must be given when electing to expense or capitalize an item.

A
  • Estimated time benefit

- Materiality

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8
Q

List the limitation of recorded value of self-constructed assets.

A

Market value at completion.

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9
Q

Define “get ready costs.”

A

All costs incurred to get the asset on the company’s premises and ready for use.

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10
Q

How is the cash equivalent price in the issuance of securities determined?

A

In fair value of asset acquired or of securities issued, whichever can be most clearly determined.

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11
Q

How are donated items recorded?

A

Recorded at fair market value.

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12
Q

How is the price for group purchases recorded?

A

Total price is allocated to individual assets.

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13
Q

Define “cash equivalent price.”

A

The amount of cash paid for the asset on acquisition date.

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14
Q

What are the two allowed methods to compute total interest to be capitalized?

A

Weighted Average Method and Specific Method.

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15
Q

When are unpaid construction input costs included in Average Accumulated Expenditures (AAE)?

A

Not until cash is paid.

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16
Q

Define “avoidable interest.”

A

The amount of interest that would have been avoided had the construction not taken place.

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17
Q

Define “qualifying assets” for interest capitalization.

A

Assets constructed for an enterprise’s own use or assets intended for sale or lease that are constructed as discrete projects.

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18
Q

List the conditions that must exist to capitalize interest.

A
  • Qualifying expenditures have been made
  • Construction is proceeding
  • Interest cost is being incurred.
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19
Q

What interest rates should be used to determine capitalized interest?

A

Average interest rate during period or specific interest rate applicable to construction debt.

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20
Q

List the interest capitalization formula.

A

Interest Rate X Average Accumulated Expenditures

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21
Q

List the two-step process involved in computing capitalized interest.

A

(1) Compute average accumulated expenditures

2) Apply the appropriate interest rate(s

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22
Q

If Average Accumulated Expenditures > total interest-bearing debt, what is interest expense for the period?

A

The difference between total interest cost and the amount of interest capitalized.

23
Q

If Average Accumulated Expenditures > total interest-bearing debt, why is there no interest expense?

A

All debt could have been avoided if construction had not taken place.

24
Q

What is not included in Average Accumulated Expenditures until paid in cash?

A

Any unpaid construction input costs.

25
Q

If the proceeds from a specific construction loan are not fully used for financing construction until well into the construction phase, how is the interest handled?

A

The interest revenue is reported separately with no effect on interest capitalized.

26
Q

Where should the amount of interest paid be disclosed?

A

In the statement of cash flows, as either a part of the statement, as a supplemental schedule, or in a footnote.

27
Q

If Average Accumulated Expenditures > total interest bearing debt, what is interest expense for the period?

A

All interest is capitalized and there is no reported interest expense for the period.

28
Q

When would you increase the assets’ account basis by the post-acquisition cost?

A

When the productivity of the asset is enhanced rather than the useful life extended.

29
Q

List the accounting approaches for post-acquisition expenditures.

A
  • Substitution
  • Increase larger asset account by post-acquisition cost
  • Debit accumulated depreciation
30
Q

What is the useful like for depreciating an addition?

A

If integral part of old asset, over shorter of addition’s or old asset’s useful life. If not, over addition’s useful life.

31
Q

What is the general rule on when to capitalize post-acquisition expenditures?

A

If the asset becomes more productive or if it extends the assets life.

32
Q

What type of allocation is depreciation considered?

A

Systematic and rational allocation of capitalized asset cost to time periods.

33
Q

Define “book value.”

A

Original cost less accumulated depreciation to date.

34
Q

How do we calculate the annual straight-line depreciation amount of an asset?

A

(Cost - Salvage Value) / Useful Life

35
Q

List the non-accelerated methods of depreciation.

A

(1) Straight-line Method
(2) Service Hours Method
(3) Units of Output Method

36
Q

How do we calculate depreciation based on service hours?

A
  • Depreciation rate x service hours used

- Depreciation rate = (cost - salvage value) / estimated hours

37
Q

Depreciation is included in overhead and allocated to production based on machine hours or direct labor for what type of asset?

A

Manufacturing assets.

38
Q

When is the inventory method of depreciation used?

A

When the inventory items are smaller homogeneous groups of assets and individual records for the assets are not maintained.

39
Q

How do we calculate the rate used in double declining balance?

A

Twice the straight-line rate.

40
Q

What depreciation method does not use salvage value?

A

Double declining balance.

41
Q

What depreciation method us used for group/composite assets?

A

Straight-line method to groups rather than individual assets.

42
Q

List the type of costs capitalized for natural resources.

A
  • Acquisition
  • Exploration
  • Development
43
Q

List the methods of accounting for exploration costs.

A
  • Successful efforts

- Full costing

44
Q

What costs are included in the full costing method for exploration costs?

A

All costs of exploring for the resource are capitalized to the natural resources account.

45
Q

What costs are included in the successful efforts method for exploration costs?

A

Only the cost of successful exploration efforts are capitalized to the natural resources account.

46
Q

List the depletion rate formula.

A

(Natural Resources account balance - residual value) / (Total estimated units)

47
Q

What is the classification of natural resources on the balance sheet?

A

Non-current asset.

48
Q

Define “depletion.”

A

Refers to the allocation of the cost of the natural resource to inventory.

49
Q

Under IFRS, what two methods can be used to adjust accumulated depreciation?

A

The proportional and reset methods.

50
Q

Under IFRS, how is interest during construction accounted for?

A

Expensed or capitalized.

51
Q

How frequently do companies have to review depreciation policies under IFRS?

A

They have to be reviewed annually.

52
Q

What happens during the reset method?

A

Accumulated depreciation is reset to zero by closing it to the building account and then the building is adjusted for the revaluation.

53
Q

Under IFRS, is revaluation of PP&E allowed?

A

Yes, revaluation is allowed.

54
Q

Where is revaluation surplus reported under IFRS until the PP&E is sold?

A

It is reported in Equity.

CPAExcel FAR (20 decks)

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