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Int. Acct. I
Chapter 9: Acquisition and Disposition of Property, Plant, and Equipment
| Term | Definition |
|---|---|
| capital expenditures | investments in property, plant, and equipment |
| PPE, fixed assets, plant assets | include land, building structures (offices, factories, warehouses), and equipment (machinery, computers, vehicles, furniture, tools) |
| historical cost | the basis for valuing property, plant, and equipment |
| land improvements | structural additions with limited lives that are made to land |
| equipment | includes assets used in operations, such as store checkout counters, office furniture, factory machinery, and delivery trucks |
| self-constructed assets | direct labor associated with a construction project |
| asset retirement obligations | the costs are referred to as asset retirement costs (ARC) |
| accretion expense | a periodic expense recognized when updating the present value of a balance sheet liability |
| qualifying assets: basic principle | interest cost incurred during construction of fixed assets is part of the cost of acquiring the assets and preparing them for their intended use |
| capitalization period | the period of time during which a company must capitalize interest. |
| avoidable interest | The amount of interest cost that a company could theoretically avoid if it had not made expenditures for the asset. |
| actual interest | includes the current period actual interest on all debt. Need to prorate the interest calculation if the loan was taken out or paid off during the current year |
| weighted average accumulated expenditures (WAAE) | # months during the capitalization window the expenditure is outstanding/12 |
| lump-side purchases | use relative fair market value to allocate the purchase price among the assets |
| Issuance of stock | use the FMV of the stock given up if reliable/available; otherwise, use the FMV of the asset received |
| nonmonetary assets | an exchange for one asset for another |
| commercial substance | a transaction in which the future cash flows change because of the transaction or the the two economic positions change |
| prudent cost | an exception to the historical cost principle includes charging an assets value to high then incurring a loss |
| additions | increase or extension of existing assets. Capitalize and depreciate the cost of the addition because a new asset was created |
| improvements and replacements | substitution of an improved asset for an existing one. Capitalize and depreciate using one of three allowable methods. |
| rearrangement and reinstallation | movement of assets from one location to another. Capitalize the costs unless future benefit is questionable. |
| repairs | expenditures that maintain assets in condition for operation; expense as incurred because the benefit is likely less than one accounting cycle |
| improvement (betterment) | the substitution of a better asset for the one currently used (say, a concrete floor for a wooden floor) |
| replacement | the substitution of a similar asset (a wooden floor for a wooden floor) |
| ordinary repairs | to maintain plant assets in operating condition |
| major repairs | such as an overhaul occurs, several periods will benefit. |
| involuntary conversion | an asset's service is terminated such as fire. flood, theft, or condemnation |
| contribution | some type of asset (such as cash, securities, land, or buildings), services, or use of facilities, but it also could be the forgiveness of a debt |
Created by:
ryanriggs18
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