Acquisition and Disposition of PPE
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| charteristics of PPE | acquired for use in operations & not for resale, long-term in nature and usually depreciable; possess physical substance
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| historical cost | cost of obtaining asset & how much to make it ready for its intended use
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| when are gains/losses recognized? | when the asset is sold exception: fair value of the PPE is less than its carrying amount, the asset may be written down
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| cost of land | all expenditures made to acquire land and ready it for use are considered part of the land cost 1)purchase price; 2) closing costs, 3) costs incurred, 4) assumption of any liens, mortgages and 5) any additional land improvements
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| costs of land are capitalized when? | land is not producing revenue
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| cost of buildings | all expenditures related directly to their acquisition 1) materials, labor, and overhead costs incurred during construction; 2) professional fees and building permits
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| cost of equipment | acquiring the equipment and preparing it for use
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| self-constructed areas | must allocate costs/expenses to arrive at the cost
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| 3 ways to handle interest costs during construction | 1)capitalize no interest charges during construction; 2) charge construction with all costs of funds emloyed; 3)capitalize only actual interest costs incurred during construction - GAAP required
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| capitalize means | defer
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| capitalization requirements | qualifying assets, capitalization period, amount of capitalize
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| qualifying assets | under construction for own use, assets intended for sale/lease; must require a period of time to get assetes ready for their intended use
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| capitalization period | date we start until the date of use; 1)expenditures made, 2) activities necessary, 3) interest cost incurred
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| amount to capitalize | lesser of actual interest costs or avoidable cost
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| companies should record PPE at | the fair value of what they give up or at the fair value of the asset received
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| commercial substance | does it make you better of worse off?
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| exchange has commerical substance | recognize gains and losses immediately
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| exchange lacks commercial substance- no cash received | defer gains, recognize losses immediately
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| exchange lacks commercial substance - cash received | recognize partial gain, recognize losses immediately
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| weighted-average accumlated expenditures | amount x capitalization period
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| weighted average interest rate | total interest/total principal
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| avoidable interest | waae x interest rate
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| actual interest | debt x interest rate
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| special issues related to interest capitalization (expenditures for land) | land: purchase of land with intention of developing it for a particular use (capitalize); purchase of land as a site for a strcuture, only capitalize construction not land
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| special issues related to interest capitalization (interest revenue) | companies should not net or offset interest revenue against interest cost
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| cash discounts | take the dicounts
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| deferred payment contracts | account for assets at the present value of the consideration
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| lump-sum purchases | fair value
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| exchanges of nonmonetary assets | exchange of nonmonetary assets on the basis of the fair value of the asset given up or the fair value of the asset received; should recognize immediately gains/losses
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| recognized gain | (cash received/cash received + fair value of other assets received) x total gain
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| companies should recognize contributions received as... | revenues in the period received
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| costs subsequent to acquisition | improvement to asset in any way should be capitalized; maintence of asset should be expensed
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| 4 major types of expenditures | additions, replacements/improvements, rearrganement/reinstallation, and repairs
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| additions | capitalize any addition because a new assets is created
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| rearrganement/reinstallation | capitalize new costs, but if costs are immaterial, expense them
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| repairs | ordinary: expense cost of repairs when incurred; major: as appropriate, treat as an addition, improvement, ot replacement
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| improvements/replacements | CV known: remove cost and acc. dep. on old asset, recognizing any gain or loss. Capitalize cost of improvement/replacement.CV unknown: debit acc. dep. or capitalized cost
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| disposition of assets | bring depreciation up to date
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