Help
Options
Didn't know it?
click below
click below
Knew it?
click below
click below
Don't Know
Remaining cards (0)
Know
retry
shuffle
restart
0:00
Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page.
Normal Size Small Size show me how
Normal Size Small Size show me how
ACCT351 (ch.8)
Property, Plant, and Equipment
| Question | Answer |
|---|---|
| what are hard assets? (also referred to as fixed, or capital assets) | things the business owns like computers, furniture, buildings, land, equipment, etc. |
| what is the definition of PPE? | tangible property that are: - held for use in the production or supply of goods or services, for rental to others, or for administrative purposes - are expected to be used during more than one period (must have physical substance) |
| when should PPE be recognized? | - when it's probable that future economic benefits associated with the item will flow to the entity - the item's cost can be measured reliably |
| why is it important to define separate components of PPE upon recognition? | so we can depreciate based on useful life, and treat subsequent expenditures properly |
| how is the value of PPE measured upon recognition? | - initially measured at cost - additional costs to bring the asset to it's location of operation, and prepare it for use should also be capitalized |
| what are some examples of additional costs that should be included in the capitalized amount? | - purchase price - delivery and handling - direct employee labor to construct/acquire it - site preparation - other installation costs - net material/labor costs required to test asset for functionality - professional fees attributable to purchase |
| what are some examples of additional costs that should not be included in capitalized amount? | - initial operating losses - employee training costs - costs for opening a new facility - costs for introducing a new product or service - costs of reorganizing and operating in a new location - administration and general overhead costs |
| how is the value of self-constructed PPE measured? | costs are identified by direct materials and labor |
| what is a constructive obligation? | when the company is obligated to dismantle, clean up, or restore site of PPE after it's useful life |
| how are constructive obligations treated in accounting? | the company must report a liability on the SFP equal to the PV of the future costs with an offsetting debit as part of the asset's capital cost |
| what is a lump sum purchase? | when a business purchases a group of PPE assets for a single price |
| how are lump sum purchases treated in accounting? | purchase price is allocated based on relative fair value of each component (various appraisals can be used) |
| what are the two types of non monetary exchanges of PPE? | 1. acquire asset by issuing shares 2. acquire asset by exchanging another asset |
| how is the value of PPE measured if it's acquired by issuing shares? | measured by FV of assets acquired. If not determinable, measured by FV of shares given up |
| how is the value of PPE measured if it's acquired by exchanging assets? | measured by FV of assets given up. If undeterminable, measured by FV of assets received |
| what is commercial substance? | a situation where after the exchange, the economic position of the company is significantly altered |
| how is the value of an incoming asset valued when commercial substance is present? | value of incoming asset = FV of outgoing asset +/- cash paid/received |
| how is the value of an incoming asset valued when commercial substance is not present? | value of incoming asset = lesser of: FV of new asset, or book value of new asset +/- cash paid/received *prohibits gains on exchanges (losses are allowed) |
| how should the value of an asset be recorded in the case of deferred payments? | should be recorded at the present value of the obligation |
| how should government grants be treated with respect to acquisition of PPE? | they should be reported as a liability or offset capital cost, then recognized over the life of the asset |
| what are the three ways to measure the value of PPE after it's initial recognition? | - cost model (ASPE, and IFRS) - revaluation model (IFRS) - fair value model (only for select properties) |
| what is the cost model of measuring value of PPE after initial recognition? | measures asset at it's cost less accumulated depreciation or accumulated impairment losses. does not adjust the asset to current value |
| what is the revaluation model of measuring PPE after initial recognition? | captures changes in asset's value over it's life. FV determined by qualified appraisers or professionals |
| what is a revaluation surplus account? | a temporary OCI account. normal credit to offset debits to PPE. closed to AOCI at year-end |
| what is done to the accumulated depreciation account at year-end under the revaluation model? | it is closed (debited) at year end with an offsetting credit to the asset cost account |
| what is the difference between carrying value and revalued fair value at year end referred to? | a revaluation gain/loss |
| how are revaluation gains/losses treated? | they are closed out of the asset account with an offsetting entry to revaluation surplus/revaluation loss accounts if a balance exists. If there is no balance, it gets credited/debited to an income statement account |
| what is a memorandum account? | an account that doesn't exist on the balance sheet, but is still tracked (revaluation loss account is a memorandum account because IFRS allows recovery of losses) |
| what is the fair value model of measuring PPE after initial recognition? | - only applied to investment properties (used for income, appreciation, not for company admin) - adjustment of carrying value to fair value every reporting period (cr/dr to property account, offsetting entry to gain/loss on value of investment property) |
| should costs for day to day servicing of PPE be recognized? | no they should not |
| when is capitalization appropriate in the case of periodic replacement? | if managers thing changes create potential for future economic benefits |
| what must be done if an item of periodic replacement is capitalized? | the old component needs to be removed from the asset carrying value before the new addition is capitalized |
Created by:
user-2025479