Term
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Definition
| Land, buildings, and equipment |
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Term
| three main characteristics |
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Definition
used in operation
long term in nature and usually depreciated
posess physical substance |
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Term
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Definition
historical cost
- reliable
- should not anticipate gains and losses but should recognize these gains and losses when the asset is sold |
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Term
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Definition
1) purchase price
2) closing costs, such as title to the land
3) costs of grading filling draining and clearing
4) assumptions liens, mortgages, or encumbrances of the property
5) Additional land improvements that have an indefinate life |
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Term
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Definition
includes all costs directly related to acquistion or construction.
costs include:
- materials, labor, and overhead costs incurred during construction
- professional fees and building permits |
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Term
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Definition
include all costs incurred in acquiring the equipment and preparing it for use:
include:
- purchase price
- freight and handling charges
- insurance on the equipment while in transit
- cost of special foundations if required
- assembling and installation costs
- costs of conducting trial runs |
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Term
| Self constructed assets include: |
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Definition
- materials and direct labor
- overhead can be handled in two ways
1. assign no fixed overhead
2. Assign a portion of all overhead to the construction process
companies use the second method extensively |
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Term
| what does GAAP say about interest costs during construction? |
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Definition
| Capitalize actual costs incurred during construction ( with modification ) |
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Term
| GAAP's method for interest costs during construction is: |
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Definition
| consistent with historical cost- all costs incurred to bring the asset to the condition for its intended use. |
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Term
| Capitalization considers three items: |
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Definition
- qualifying assets
- capitalization period
- amount to capitalize |
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Term
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Definition
Require a period of time to get them ready for intended use.
- two types of assets:
1.) Assets under construction for a company's own use.
2.) Assets intended for sale or lease that are constructed or produced as discrete. |
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Term
| When does the capitalization period begin? |
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Definition
Begins when:
- expenditures for the asset have made
- activities for readying the asset are in progress
- interest costs are being incurred |
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Term
| When does the capitalization period end? |
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Definition
| the asset is substantially complete and ready for use. |
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Term
| when you capitalize, you capitalize the lesser of: |
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Definition
1.) actual interest costs
2.) Avoidable interest |
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Term
| Companies should record property, plant, and equipment: |
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Definition
- at the fair value of what they give up or
- at the fair value of the asset recieved
whichever is more clearly evident |
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Term
| How do cash discounts affect the valuation of PPE |
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Definition
| whether taken or not, considered a reduction in the cost of the asset. |
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Term
| How do deferred payment contracts affect value of PP and E? |
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Definition
| assets, purchased through long term credit, are recorded at the present value of the consideration exchanged |
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Term
| How do lump sum purchases affect value of PPE |
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Definition
| allocate the total cost among the various assets on the basis of their fair market values. |
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Term
| How does the issuance of stock ? |
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Definition
| The market value of the stock issued is a fair indication of the cost of the property acquired. |
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Term
| How do exchanges of nonmonetary assets affect the valuation of PPE |
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Definition
- ordinarily accounted for on the basis of:
: fair value of the asset given up or
: the fair value of the asset recieved
whichever is clearly more evident
- companies should recognize immediately any gains or losses on the exchange when the transaction has commerical substance |
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Term
| How do you account for exchanges? |
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Definition
Exchange has commercial substance - recognize gains and losses immediately.
Exchange lacks commercial substance ( no cash recieved ) - Defer gains, recognize losses immediately.
Exchange lacks commercial substance ( cash recieved) - recognized partial gain, recognize losses immediately.
- If cash is 25% or more of the fair value of the exchange, recognize entire gain because earnings process is complete. |
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