1. currently used in operations
2. useful life extends greater than BS date 
3. physical substance

1. held for investment
2. held for future development purposes

1. plant and equipment- buildings, machines, and equipment
2. land improvement- parking lot, fences, etc.
3. Land- any plot in which a company had constructed facilities
4. natural resources- gravel pit, coal mine, timber

1. range of useful lives
2. depreciation methods
3. accumulated depreciation

1. all expenditures necessary to bring plant assets to current location and condition
2. must relate to current and future periods
3. interest is expensed unless from when asset was constructed

1. labor
2. material
3. overhead
4. interest incurred during construction period

1. incremental- capitalize only amount of OH that exceed typical amount
2. pro rata- % of oh in relation to entire year is capitalized

• require a significant time period for construction and are not routinely produced
• asset must qualify for interest to be capitalized

1. qualifying expenditures have been made
2. activities that are necessary to get asset ready for its intended use are in progress
3. interest cost is being incurred. only actual interest is capitalized

1. compute average accumulated expenditures- amount of interest that could have been avoided (average cash investment in project during period)
2. apply appropriate interest rate- AAE X IR=amount of debt that could have been avoided

1. weighted average method- capitalized interest based on weighted average rate on all interest bearing debt
2. specific method- capitalizes all interest on specific construction loans first. then, if needed, cpitalized interest on all other debt based on average interest rate for that debt

• all interest for period is capitalized b/c all debt could have been avoided if not for construction
• no interest expense reported

reported interest expense for period is

(total interest cost-amount of capitalized interest)

• reported seperately and has no effect on interest capitalization
• exception- if funds are externally restricted tax-exempt borrowings, then a right to offset exists

• amount capitalized and expensed
• interest paid is also disclosed in either SOCF or footnote

1. makes asset more productive
2. or makes asset have longer life

• intergral part- depreciated over shorter of (A) its useful life or (B) remaining useful life of large asset
• not integral part- depreciate addition over its useful life

1. substitutuion
2. increase larger asset account by post-aquisition expenditure to larger asset
3. turn back the clock

• remove accumulated depreciation and original cost of old component, recognize loss, and capitalize post-acquisition expenditure to large asset
• only available if records were maintained of old component cost and accumulated depreciation

• debit accumulated depreciation (turn back clock on life of larger asset)
• used when expenditure increases useful life of the asset
• suited especially for extraordinary repairs

1. straight line= (cost-salvage value)/useful life
2. service hour method= (cost-salvage value)/useful life in service hours
3. units output method= (cost-salvage value)/useful life in units production

year 1: (N/SYD)(cost-salvage value)

year 2: ((N-1)/SYD)(cost-salvage value)

year 1: cost(2/n)

year 2: (cost - yr 1 depreciation)(2/n)

1. inventory appraisal
2. group/composite methods

1. applies SL to groups of assets
2. AD accumulated in a control account
3. G/L not recorded
4. rate = (annual group SL depreciation/total original cost of group)
5. Rate X original cost of assets remaining = depreciation expense

1. successful efforts method- results in lower depletion rate, higher exploration expense, reflects definition of asset
2. full costing method- reflects matching principle, doesn't have exploration expense when exploring

• not an expense, but an allocation of natural resource from noncurrent assets to inventory
• D-Inventory C-Natural resource account

= (depletion rate) x (# of units removed in period)

depletion rate equation

• if can be moved site-to-site: depreciate of useful life
• if can't be moved: depreciate over shorter of useful life or natural resource 

• represent the right of buyer/holder to receive from issuer a principle amount at a specifiec time and receive interest payments
• EX: bonds, notes, convertible bonds/notes, redeemable preferred stock
• doesn't include: CS, PS, warrants/rights, futures contracts

• represent ownership interest or right to acquire/dispose of interest
• ex: CS, PS, warrants, call options/rights, puts

1. only applies to investments in debt securities
2. applies when investor has positive intent to hold to maturity and ability to hold to maturity

1. sale near enough to maturity date that interest rate risk is substantially eliminated
2. investor already collected at least 85% of principle by time of sale

1. record at cost (doesn't include accrued interest)
2. carry at amortized cost
3. cost > maturity value = premium

1. determine if FV < amortized cost, if so; impaired
2. determine if impairment is other than temporary

(if yes, impariment loss= FV - amortized cost. FV becomes amortized cost basis and subsequent recoveries are not recognized)

• any remaining securities reclassified as A4S
• recognize interest income and amortized premium/discount to time of sale
• determine CV of investment sold

• effective interest rate method is based on estimated cash flow over estimated life (contractual cash flows over contractual life for GAAP)
• H2M now eliminated

• applies to debt and equity securities
• recorded at cost, carried and reported at FV
• debt securities: periodic interest income
• Equity securities: dividends received

• FV>CV: D-trading investment allowance, C-unrealized holding gain 
• FV<CV: D- unrealized holding loss C-trading investment allowance
• gain/loss reported on income statement as part of net income (continuing operations)

1. Debt: recognized interest income and amortization of premium/discount to date of sale
2. determine CV (financial: FIFO, specific ID, or average cost. Tax: fifo, or specific ID)
3. recognize realized g/l at date of sale

• applies to debt and equity securities
• buys with any intent other then H2M or sell near term

6 accounting rules

for available for sale securities

1. record at cost
2. carry and report investment at FV
3. holding gain/loss goes to OCI and flows through AOCI on BS
4. recognize interest when earned and dividends when declared
5. investing activity on SOCF
6. liquidating dividends are return of capital and decrease investment account

• write off carrying value
• write on FV
• recognize G/L in NI

• write off CV
• write on FV
• G/L in OCI

• write off CV
• write on FMV
• recognize G/L in NI

• write off CV
• write on carrying (fair) value
• recognize unrealized g/l in AOCI and amortize over life

• write off CV
• write-on FV
• recognize G/L in NI

• tranfers not allowed for in and out of trading securities
• only debt securities can be transferred 
• 2 investment categories: debt @ amortized cost and all other

• only concerned with certain equity securities b/c it must be preferred stock
• investment recorded at cost

• GAAP: entity can elect FV method over equity method
• IFRS: only ventrue capitalists and mutual fund type investors can elect FV over equity for assosciates (name for entity which one exerts significant influence over)

• can be set up by contract alone or as a separate legal entity
• invstor recognizes contribution to JV as an investment at CV

Corporate JVs: 

• variable interst entity: primary beneficiary consolidates JV
• not variable interest or investor not primary beneficiary: use equity method
• JV under unilateral control: consolidated by sole investor

Joint venture partnership

• use partnership accounting with 3 adjustments:

1. eliminate interrelated P/L
2. investor recognizes its share P/L and div. in investment account
3. its share of distributions decreases investment account

1. jointly controlled entity: activities carried out by separate entity. accounting only for this type.
2. jointly controlled operation: each party uses its own assets for project. no separate entity
3. jointly controlled assets: no separate entity formed but jointly owned assets are used

• IFRS permits recognition in income of portion of G/L on non-monetary assets contributed to JV
• portion recognized=contributor's share of differences between CV and FV at date of contribution

1. equity
2. proportionate consolidation method (investor recognizes its share of A/L/exp/rev of JV and presents in FS)

• only requires a memo entry for new # of stocks and $/share
• no income effect until shares disposed of and G/L recognized

• only memo entry required to decrease per/share cost (or increase if reduced number of shares)
• no income effect until shares disposed of and g/l recognized

• if option $ is > market $, then right has value
• cost of original shares allocated between those shares and rights based on relative FV

• land, building, part of building, or land and building held by owner or lessee under a finance lease for purpose of earning rent for capital appreciation or both income and capital appreciation
• only recognized for IFRS

• held for use in production or supply of goods or services for admin purposes
• property held for use in normal course of business
• property being developed on behalf of another party
• owner occupied property
• property under captial lease

• initial: at cost
• subsequent: FV (g/l in NI) or cost (assessed for impairment)
• tranfers in and out: apporpriate only if change in use is evidences by events

• assumptions and methods used to find FV
• qualified independent party valued assets

1. depreciation method
2. useful life
3. gross carry amount and accumulated depreciation and impairment loss at begining/end of period
4. FV of investment property

1. identifiable (trademarks, copyrights, patents. generated by legal contract or are separable. nonphysical, noncurrent, and value is tough to gage)
2. unidentifiable (just goodwill)

• finite legal life or economic factors show life is limited
• if all assets are used together, use shortest useful life

• capitalize external costs only
• amortize over userful life w/ no residual value, typically straight line method
• impairment: compare BV to cost. if BV>cost, impaired. impairment loss = bv-FV

• no legal, contractual, or competitive factors that will limit useful life and no forseeable limit on life
• if it can be renewed indefinitely, no amortization if company has ability and intent to do so

• capitalize external costs only
• can't amortize b/c you dont know life
• impairment: same as assets held for sale, BV>FV. impairment loss = bv-fv

• separately identified
• same disclosures as development stage companies

• result of a business combination
• difference between FMV of acquired firm and FMV of net identifiable assets

• should be tested anually
• to evaluate, simulated purchase at later date and see if GW<recorded amount, it is impaired (write-down GW and record loss)

1.  test for impairment- if FV of purchased comany < investor's CV including previously recorded GW, then go to step 2
2. impairment loss calculation- decline in GW. adjusted GW=current FV-FVnet identifiable assets

*if CV in step 1 is 0 or negative, step 2 must be performed if it is more likely than not that GW is impaired. if loss, recorded as a cumulative adjustment to beginning RE

1. future sacrifices of economic benefits
2. obligations to transfer assets or provide future services
3. results of past transactions or events

1. current/noncurrent
2. definite/indefinite

• reported at amount due (nominal amount)
• liabilities for services are reported at amount received
• if continuously refinanced be replacing w/ other CVs, then still current

1. some due w/ in one year are non-current: if payable with another method besides using a current asset
2. some due in > 1 year are current: long-term obligations that are callable on demand

1. not dependent on future events
2. include those payable indefinite amounts, those which can only be estimated, and accrued liabilities which are recorded for expenses recognized before payment is made

from 2 different source:

1. employer costs: gross salary, FICA share, etc. recognized as an expense
2. employee costs withheld: income tax, FICA, etc. employer doesn't recognize expense but acts as collection agent

credited to 1 of 3 accounts which are all the same:

1. deferred revenue
2. unearned revenue
3. revenue received in adavance

• record unearned revenue when sold
• liability reduced when card is used
• forfeiture: retailer still recognizes revenue

• amount received is a liability until container is returned
• if never returned, deposit forfeited. a non-sales revenue is recognized as well as expense=cost of container

• unearned revenue recognized over life of the K
• expense recognized as incurred
• if total cost is estimable, revenue is recognized in proportion to costs incurred, otherwise SL is used
• costs directly related to individual K's are capitalized and amortized over life of K in same proportion as revenue
• advertising and other indirect costs=expensed as incurred

separately recognized if...

1. item has value on stand-alone basis and
2. arangement includes a general right of return relative to delivered item, delivery of undelivered item is probable, and substantially in control of the vendor

• when vendor can determine selling $ for undeliverable items, but can't determine $ for delivered items
• total price - undelivered price = delivered price
• *exception: if software is integral part of a bundle including nonsoftware products, then relative selling $ method used