The document discusses accounting for property, plant, and equipment. It covers topics such as the costs that should be included in the initial valuation of PP&E like land, buildings, equipment, and self-constructed assets. It also discusses accounting problems related to capitalizing interest costs during construction periods. Specifically, it outlines qualifications for capitalizing interest, how to determine the capitalization period, and how to calculate the amount of interest to capitalize.
Acquisition and Disposition of Property, Plant, and Equipmentreskino1
Identify property, plant, and equipment and its related costs.
Discuss the accounting problems associated with interest capitalization.
Explain accounting issues related to acquiring and valuing plant assets.
Describe the accounting treatment for costs subsequent to acquisition.
Describe the accounting treatment for the disposal of property, plant, and equipment.
Current Liabilities, Provisions, and Contingenciesreskino1
Current Liabilities,
Provisions, and Contingencies
After studying this chapter, you should be able to:
1. Describe the nature, valuation, and reporting of current liabilities.
2. Explain the accounting for different types of provisions.
3. Explain the accounting for loss and gain contingencies.
4. Indicate how to present and analyze liability-related information
Module 5 - Long-term Construction ContractsMikee Bylss
1) The document defines construction contracts and discusses how to account for revenue and costs over time under long-term construction contracts. It describes the percentage-of-completion and cost-recovery (zero-profit) methods.
2) Under the percentage-of-completion method, revenue and costs are recognized each period based on the percentage of the contract completed. Completion is often measured using the cost-to-cost method.
3) The cost-recovery method only recognizes revenue up to the amount of costs incurred, with any profit recognized only after the project is fully complete.
Bab 8 - Valuation of Inventories, a Cost-Basis Approachmsahuleka
This document discusses key concepts related to inventory valuation using a cost basis approach. It identifies major classifications of inventory, distinguishes between perpetual and periodic inventory systems, and describes how different cost flow assumptions like FIFO, LIFO, and average cost affect the valuation of inventory and calculation of cost of goods sold. The learning objectives cover inventory classification, the costs included in inventory valuation, LIFO reserves and liquidations, advantages and disadvantages of different methods, and why companies select certain valuation methods.
Describe depreciation concepts and methods of depreciation.
Identify other depreciation issues.
Explain the accounting issues related to asset impairment.
Discuss the accounting procedures for depletion of mineral resources.
Apply the accounting for revaluations.
Demonstrate how to report and analyze property, plant, equipment, and mineral resources.
This document discusses accounting for property, plant, and equipment. It covers topics such as the initial valuation of PP&E including acquisition costs, costs of self-constructed assets, and accounting for interest costs incurred during construction. The document provides learning objectives for a chapter on acquisition and disposition of PP&E and includes illustrations and examples to demonstrate accounting entries and calculations for capitalizing interest costs.
Acquisition and Disposition of Property, Plant, and Equipmentreskino1
Identify property, plant, and equipment and its related costs.
Discuss the accounting problems associated with interest capitalization.
Explain accounting issues related to acquiring and valuing plant assets.
Describe the accounting treatment for costs subsequent to acquisition.
Describe the accounting treatment for the disposal of property, plant, and equipment.
Current Liabilities, Provisions, and Contingenciesreskino1
Current Liabilities,
Provisions, and Contingencies
After studying this chapter, you should be able to:
1. Describe the nature, valuation, and reporting of current liabilities.
2. Explain the accounting for different types of provisions.
3. Explain the accounting for loss and gain contingencies.
4. Indicate how to present and analyze liability-related information
Module 5 - Long-term Construction ContractsMikee Bylss
1) The document defines construction contracts and discusses how to account for revenue and costs over time under long-term construction contracts. It describes the percentage-of-completion and cost-recovery (zero-profit) methods.
2) Under the percentage-of-completion method, revenue and costs are recognized each period based on the percentage of the contract completed. Completion is often measured using the cost-to-cost method.
3) The cost-recovery method only recognizes revenue up to the amount of costs incurred, with any profit recognized only after the project is fully complete.
Bab 8 - Valuation of Inventories, a Cost-Basis Approachmsahuleka
This document discusses key concepts related to inventory valuation using a cost basis approach. It identifies major classifications of inventory, distinguishes between perpetual and periodic inventory systems, and describes how different cost flow assumptions like FIFO, LIFO, and average cost affect the valuation of inventory and calculation of cost of goods sold. The learning objectives cover inventory classification, the costs included in inventory valuation, LIFO reserves and liquidations, advantages and disadvantages of different methods, and why companies select certain valuation methods.
Describe depreciation concepts and methods of depreciation.
Identify other depreciation issues.
Explain the accounting issues related to asset impairment.
Discuss the accounting procedures for depletion of mineral resources.
Apply the accounting for revaluations.
Demonstrate how to report and analyze property, plant, equipment, and mineral resources.
This document discusses accounting for property, plant, and equipment. It covers topics such as the initial valuation of PP&E including acquisition costs, costs of self-constructed assets, and accounting for interest costs incurred during construction. The document provides learning objectives for a chapter on acquisition and disposition of PP&E and includes illustrations and examples to demonstrate accounting entries and calculations for capitalizing interest costs.
Bab 9 - Inventories, Additional Valuation Issuesmsahuleka
The document discusses various inventory valuation methods including:
1) The lower-of-cost-or-market rule which values inventory at the lower of cost or net realizable value.
2) Net realizable value and relative sales value methods which are used in specific situations.
3) Gross profit and retail inventory methods which are used to estimate ending inventory balances.
This document discusses current liabilities and contingencies. It begins by defining a liability and current liability. Typical current liabilities include accounts payable, notes payable, current maturities of long-term debt, short-term obligations expected to be refinanced, dividends payable, customer advances and deposits, unearned revenues, sales taxes payable, and income taxes payable. It also identifies types of employee-related liabilities such as payroll deductions, compensated absences, and bonuses. Additionally, the document explains the classification of short-term debt expected to be refinanced and identifies types of gain and loss contingencies. It concludes by indicating how to present and analyze liabilities and contingencies.
The document provides an overview of the development of accounting principles and professional practice. It discusses how the environment of accounting has evolved over time to meet changing demands and influences. Three key influences are: 1) recognizing scarce resources, 2) current concepts of property rights and equity, and 3) measuring information for absentee investors. The document also describes the objectives of financial reporting, key qualitative characteristics of accounting information, elements of financial statements, and basic principles of accounting including measurement, revenue/expense recognition, and full disclosure.
This document provides an overview of accounting for receivables. It defines different types of receivables like accounts receivable and notes receivable. It explains how companies recognize, value, and dispose of both accounts receivable and notes receivable. Specific topics covered include recognizing revenue on credit sales, estimating and recording allowance for doubtful accounts, accounting for uncollectible accounts, determining maturity dates and interest on notes, and presenting receivables on financial statements. The document aims to help students understand the key accounting concepts and entries related to receivables.
This document summarizes accounting methods for stock investments. It discusses three levels of influence based on percentage of voting stock ownership and the corresponding accounting methods: less than 20% uses fair value (cost) method; 20-50% uses equity method; over 50% uses consolidated financial statements. The equity method adjusts the carrying value of the investment to reflect the investor's share of earnings and dividends over time. The document provides examples of applying the fair value and equity methods and addressing factors beyond ownership, such as ability to exert influence. It also covers applying the equity method to purchase price allocations.
The document discusses accounting issues related to cash, accounts receivable, and uncollectible accounts receivable. It defines cash and receivables, identifies different types of receivables, and explains recognition and valuation of receivables including estimation of uncollectible amounts using percentage-of-sales and percentage-of-receivables approaches. It also covers presentation of receivables on the statement of financial position and journal entries related to receivables transactions.
The document discusses accounting for equity. It covers:
1. The key components of equity including contributed capital, retained earnings, and treasury shares.
2. The accounting procedures for issuing shares, whether par value or no-par shares, including allocation of proceeds when shares are issued with other securities.
3. Accounting for shares issued in non-cash transactions, using either the fair value of assets received or shares issued, whichever can be determined more reliably.
This document provides an overview of accounting for liabilities. It begins by defining current liabilities and identifying major types like accounts payable, notes payable, unearned revenue, and accrued expenses. It then discusses accounting for notes payable, including example journal entries. The document also explains accounting for other current liabilities like sales tax payable and unearned revenue. It concludes by covering non-current liabilities such as bonds, including why companies issue bonds, types of bonds, accounting for bond issuances and redemptions, and accounting for long-term notes payable.
This document summarizes key accounting concepts related to cash, receivables, and related valuation issues. It defines cash and receivables, discusses how to recognize, measure, and present them in financial statements. Specific topics covered include cash controls, restricted cash, cash equivalents, accounts and notes receivable, allowance for doubtful accounts, present value concepts for long-term notes receivable.
The document is from Frank Wood's Business Accounting 1 textbook. It discusses the principles of double-entry bookkeeping and how to record business transactions using debits and credits. The learning objectives are to explain accounts, elements of transactions, and double-entry bookkeeping. An example is provided of a business starting with £10,000 cash and purchasing a van for £4,500 and fixtures on credit for £1,250, showing the corresponding debits and credits to accounts.
This document provides an overview of IAS 11, which provides accounting guidance for construction contracts. It discusses the objective and scope of IAS 11, key definitions, how to account for contract revenue and costs, methods for estimating the stage of completion, and how to account for changes in estimates and expected contract losses. The standard provides guidance on recognizing revenue and expenses over the duration of a construction contract based on the percentage of completion method when outcomes can be reliably estimated.
The document discusses accounting for property, plant, and equipment (PP&E). It defines PP&E as long-term tangible assets used in operations, including land, buildings, machinery, and equipment. Historical cost is the primary basis for valuing PP&E, which measures the cash paid or equivalent price to bring the asset to the location and condition for its intended use. Costs included in the initial valuation of PP&E comprise all expenditures needed to acquire and prepare the asset, such as purchase price, transportation, installation, and construction costs. The document also covers accounting for self-constructed assets and nonmonetary exchanges of PP&E.
The document discusses issues related to multinational accounting and the translation of foreign entity financial statements. It provides answers to multiple questions covering topics such as the benefits of adopting international financial reporting standards (IFRS), the structure and process of the International Accounting Standards Board (IASB), considerations around US adoption of IFRS, foreign currency translation methods, and the determination of a foreign entity's functional currency.
Chapter 14:
Describe the nature of bonds and indicate the accounting for bond issuances.
Explain the accounting for long-term notes payable.
Explain the accounting for the extinguishment of non-current liabilities.
Indicate how to present and analyze non-current liabilities.
Non-current liabilities (long-term debt) consist of an expected outflow of resources arising from present obligations that are not payable within a year or the operating cycle of the company, whichever is longer.
The document provides an overview of International Accounting Standards (IAS) 37, 17, and 19 regarding accounting for liabilities.
IAS 37 covers provisions, contingent liabilities, and contingent assets. It requires provisions to be measured at management's best estimate of the amount required to settle the obligation. IAS 17 distinguishes between finance and operating leases, with different accounting treatments. Finance leases require recognition of an asset and liability, while operating leases do not. IAS 19 addresses accounting for short-term employee benefits, post-employment benefits, other long-term benefits, and termination benefits. Short-term benefits are expensed as incurred without discounting, while other categories require recognition of liabilities.
IAS 37 provides guidance on accounting for provisions, contingent liabilities, and contingent assets. It defines key terms like liability, provision, contingent liability, and contingent asset. It outlines the criteria for recognizing provisions, including a reliable estimate of the obligation resulting from a past obligating event whose settlement is probable. Measurement of provisions involves a best estimate of the expenditure required to settle the obligation. Disclosures are required regarding provisions, contingent liabilities, and contingent assets.
ch10-Acquisition and disposition of PPE.pptmorium2
This chapter discusses accounting for property, plant, and equipment. It describes how PP&E assets are initially valued at historical cost, including acquisition costs. It also discusses accounting for self-constructed assets and interest capitalization. The chapter explains how costs after acquisition are treated, including capitalizing improvements versus expensing repairs. It concludes by covering accounting for dispositions of PP&E assets.
This document discusses accounting for property, plant, and equipment. It covers topics such as the initial valuation of PP&E including acquisition costs, costs of self-constructed assets, and accounting for interest costs incurred during construction. The document provides learning objectives for a chapter on acquisition and disposition of PP&E and includes examples and illustrations of accounting for various costs related to PP&E.
Acquisition and disposition of property, plant, and equUmar Gul
The document discusses the accounting treatment for the acquisition and disposition of property, plant, and equipment (PP&E). It covers the initial valuation of PP&E including acquisition costs, self-constructed assets, and interest capitalization. It also discusses subsequent valuation including nonmonetary exchanges, contributions, and accounting for costs and disposals after acquisition.
Bab 9 - Inventories, Additional Valuation Issuesmsahuleka
The document discusses various inventory valuation methods including:
1) The lower-of-cost-or-market rule which values inventory at the lower of cost or net realizable value.
2) Net realizable value and relative sales value methods which are used in specific situations.
3) Gross profit and retail inventory methods which are used to estimate ending inventory balances.
This document discusses current liabilities and contingencies. It begins by defining a liability and current liability. Typical current liabilities include accounts payable, notes payable, current maturities of long-term debt, short-term obligations expected to be refinanced, dividends payable, customer advances and deposits, unearned revenues, sales taxes payable, and income taxes payable. It also identifies types of employee-related liabilities such as payroll deductions, compensated absences, and bonuses. Additionally, the document explains the classification of short-term debt expected to be refinanced and identifies types of gain and loss contingencies. It concludes by indicating how to present and analyze liabilities and contingencies.
The document provides an overview of the development of accounting principles and professional practice. It discusses how the environment of accounting has evolved over time to meet changing demands and influences. Three key influences are: 1) recognizing scarce resources, 2) current concepts of property rights and equity, and 3) measuring information for absentee investors. The document also describes the objectives of financial reporting, key qualitative characteristics of accounting information, elements of financial statements, and basic principles of accounting including measurement, revenue/expense recognition, and full disclosure.
This document provides an overview of accounting for receivables. It defines different types of receivables like accounts receivable and notes receivable. It explains how companies recognize, value, and dispose of both accounts receivable and notes receivable. Specific topics covered include recognizing revenue on credit sales, estimating and recording allowance for doubtful accounts, accounting for uncollectible accounts, determining maturity dates and interest on notes, and presenting receivables on financial statements. The document aims to help students understand the key accounting concepts and entries related to receivables.
This document summarizes accounting methods for stock investments. It discusses three levels of influence based on percentage of voting stock ownership and the corresponding accounting methods: less than 20% uses fair value (cost) method; 20-50% uses equity method; over 50% uses consolidated financial statements. The equity method adjusts the carrying value of the investment to reflect the investor's share of earnings and dividends over time. The document provides examples of applying the fair value and equity methods and addressing factors beyond ownership, such as ability to exert influence. It also covers applying the equity method to purchase price allocations.
The document discusses accounting issues related to cash, accounts receivable, and uncollectible accounts receivable. It defines cash and receivables, identifies different types of receivables, and explains recognition and valuation of receivables including estimation of uncollectible amounts using percentage-of-sales and percentage-of-receivables approaches. It also covers presentation of receivables on the statement of financial position and journal entries related to receivables transactions.
The document discusses accounting for equity. It covers:
1. The key components of equity including contributed capital, retained earnings, and treasury shares.
2. The accounting procedures for issuing shares, whether par value or no-par shares, including allocation of proceeds when shares are issued with other securities.
3. Accounting for shares issued in non-cash transactions, using either the fair value of assets received or shares issued, whichever can be determined more reliably.
This document provides an overview of accounting for liabilities. It begins by defining current liabilities and identifying major types like accounts payable, notes payable, unearned revenue, and accrued expenses. It then discusses accounting for notes payable, including example journal entries. The document also explains accounting for other current liabilities like sales tax payable and unearned revenue. It concludes by covering non-current liabilities such as bonds, including why companies issue bonds, types of bonds, accounting for bond issuances and redemptions, and accounting for long-term notes payable.
This document summarizes key accounting concepts related to cash, receivables, and related valuation issues. It defines cash and receivables, discusses how to recognize, measure, and present them in financial statements. Specific topics covered include cash controls, restricted cash, cash equivalents, accounts and notes receivable, allowance for doubtful accounts, present value concepts for long-term notes receivable.
The document is from Frank Wood's Business Accounting 1 textbook. It discusses the principles of double-entry bookkeeping and how to record business transactions using debits and credits. The learning objectives are to explain accounts, elements of transactions, and double-entry bookkeeping. An example is provided of a business starting with £10,000 cash and purchasing a van for £4,500 and fixtures on credit for £1,250, showing the corresponding debits and credits to accounts.
This document provides an overview of IAS 11, which provides accounting guidance for construction contracts. It discusses the objective and scope of IAS 11, key definitions, how to account for contract revenue and costs, methods for estimating the stage of completion, and how to account for changes in estimates and expected contract losses. The standard provides guidance on recognizing revenue and expenses over the duration of a construction contract based on the percentage of completion method when outcomes can be reliably estimated.
The document discusses accounting for property, plant, and equipment (PP&E). It defines PP&E as long-term tangible assets used in operations, including land, buildings, machinery, and equipment. Historical cost is the primary basis for valuing PP&E, which measures the cash paid or equivalent price to bring the asset to the location and condition for its intended use. Costs included in the initial valuation of PP&E comprise all expenditures needed to acquire and prepare the asset, such as purchase price, transportation, installation, and construction costs. The document also covers accounting for self-constructed assets and nonmonetary exchanges of PP&E.
The document discusses issues related to multinational accounting and the translation of foreign entity financial statements. It provides answers to multiple questions covering topics such as the benefits of adopting international financial reporting standards (IFRS), the structure and process of the International Accounting Standards Board (IASB), considerations around US adoption of IFRS, foreign currency translation methods, and the determination of a foreign entity's functional currency.
Chapter 14:
Describe the nature of bonds and indicate the accounting for bond issuances.
Explain the accounting for long-term notes payable.
Explain the accounting for the extinguishment of non-current liabilities.
Indicate how to present and analyze non-current liabilities.
Non-current liabilities (long-term debt) consist of an expected outflow of resources arising from present obligations that are not payable within a year or the operating cycle of the company, whichever is longer.
The document provides an overview of International Accounting Standards (IAS) 37, 17, and 19 regarding accounting for liabilities.
IAS 37 covers provisions, contingent liabilities, and contingent assets. It requires provisions to be measured at management's best estimate of the amount required to settle the obligation. IAS 17 distinguishes between finance and operating leases, with different accounting treatments. Finance leases require recognition of an asset and liability, while operating leases do not. IAS 19 addresses accounting for short-term employee benefits, post-employment benefits, other long-term benefits, and termination benefits. Short-term benefits are expensed as incurred without discounting, while other categories require recognition of liabilities.
IAS 37 provides guidance on accounting for provisions, contingent liabilities, and contingent assets. It defines key terms like liability, provision, contingent liability, and contingent asset. It outlines the criteria for recognizing provisions, including a reliable estimate of the obligation resulting from a past obligating event whose settlement is probable. Measurement of provisions involves a best estimate of the expenditure required to settle the obligation. Disclosures are required regarding provisions, contingent liabilities, and contingent assets.
ch10-Acquisition and disposition of PPE.pptmorium2
This chapter discusses accounting for property, plant, and equipment. It describes how PP&E assets are initially valued at historical cost, including acquisition costs. It also discusses accounting for self-constructed assets and interest capitalization. The chapter explains how costs after acquisition are treated, including capitalizing improvements versus expensing repairs. It concludes by covering accounting for dispositions of PP&E assets.
This document discusses accounting for property, plant, and equipment. It covers topics such as the initial valuation of PP&E including acquisition costs, costs of self-constructed assets, and accounting for interest costs incurred during construction. The document provides learning objectives for a chapter on acquisition and disposition of PP&E and includes examples and illustrations of accounting for various costs related to PP&E.
Acquisition and disposition of property, plant, and equUmar Gul
The document discusses the accounting treatment for the acquisition and disposition of property, plant, and equipment (PP&E). It covers the initial valuation of PP&E including acquisition costs, self-constructed assets, and interest capitalization. It also discusses subsequent valuation including nonmonetary exchanges, contributions, and accounting for costs and disposals after acquisition.
The document provides an overview of the key topics and learning objectives covered in Chapter 1 regarding property, plant, and equipment (PPE). It discusses the nature of PPE assets, how to determine their initial acquisition cost, and the types of expenditures that should be included in the valuation. Specifically, it covers the costs of land, land improvements, buildings, equipment, and special considerations for self-constructed assets, including the capitalization of interest during construction periods.
This chapter discusses accounting for property, plant, and equipment (PP&E). It describes how PP&E assets are initially valued at historical cost, including acquisition costs. It also discusses accounting for self-constructed assets and interest capitalization during construction. The chapter covers accounting for costs after acquisition, including capitalizing improvements versus expensing repairs. It concludes with the accounting treatment for disposal of PP&E assets.
This document discusses accounting for long-lived assets such as plant, property, and equipment. It covers topics such as:
- Plant assets are recorded at historical cost and depreciated over their useful lives, except for land which is not depreciated.
- Depreciation methods include straight-line, declining balance, and units-of-activity, and allocate the cost of an asset over its useful life.
- Periodic depreciation expense can be revised due to changes in estimated useful life or salvage value, which are changes in accounting estimates affecting the current period and future periods.
- Long-lived assets are presented on the balance sheet net of accumulated depreciation. Notes to the financial statements
Ch. 10 – Plant, Property, Equipment and IntangiblesI.TYPES OF .docxtidwellveronique
Ch. 10 – Plant, Property, Equipment and Intangibles
I.
TYPES OF LONG-LIVED ASSETS
A.
Characteristics of Plant, Property & Equipment
· Used in normal operations, not for resale or investment
· Long-term in nature (>1 yr. useful life)
· Possess physical substance (tangible in nature)
· Examples: Land, Building, Equip, Machinery, Furniture/Fixtures, Leasehold Improvements, Wasting Assets (i.e. natural resources)
B.
Characteristics of Intangibles:
1. Lack physical substance
2. Provide future benefit (increases the revenue-producing ability of the company)
3.
They are not financial instruments.
Typical intangibles:
1.
Patents – legal life of 20 years from date granted. Legal fees for the successful defense of a patent are treated as a capital expenditure and added to the BV of the patent when incurred…not expensed.
2.
Copyrights – legal life is life of creator + 70 yrs.
3.
Customer Lists – usually 3 year life
4.
Franchises/Licenses/Permits – amortize over term of contract
5.
Trademarks/Trade names – indefinite # of renewals for periods of 10 yrs. (don’t amortize)
6.
Goodwill – indefinite life (do not amortize). Only occurs as a result of one company buying an entire other company. Goodwill represents the excess of the purchase price over the FMV of the Net Assets. (Net Assets = FMV Assets less all liabilities of the company purchased.) Goodwill is not a separately identifiable asset. It derives its value from the other assets that the company uses to produce earnings in excess of normal.
II.
Determining Original Cost
PP&E and intangibles can be acquired individually, lump sum purchase, using deferred payments, issuance of securities, by donation, thru exchange or self-construction
Historical cost is the usual basis for PP&E valuation.
Costs to Include in “Original Cost”:
· All costs incurred to bring the asset into its productive capacity
· Acquisition cost = cash paid or “cash equivalent value” (PV of note) + all costs of readying the asset for service.
Advantages of Historical Cost:
· Cost = Fair Value on date of acquisition
· Cost is reliable, objective & verifiable
· Cost is consistent with reporting most other assets, liabilities & equity
A.
Land - don’t depreciate - never “used up”
Cost = all expenditures made to acquire the land and make ready for intended use
Costs to capitalize:
Purchase price
+
Closing Costs/Attorney’s fees/Title fees/Broker’s commissions/past due property taxes
+ Cost of surveys
+
Costs to get the land ready for use (clear existing structures, level land)
(-)
Proceeds from sale of salvage
=
Historical Cost of Land
B. Land Improvements - Improvements with limited lives (like private driveways, parking lots, fences, sprinkler systems etc.) record as Land Improvements and depreciate separately.
C. Machinery -
· all expenditures normally incurred in acquiring the equipment and preparing it for use are included
· this includes purchase price less purchase discounts (if ...
1. Capital expenditure means expenditure to acquire or improve assets and bring them into working condition. Examples include purchasing machinery or paying customs duty for imported machinery.
2. Revenue expenditure maintains assets in working condition or operates the business. Examples include repairs, salaries, or purchasing stationery.
3. Deferred revenue expenditure provides benefits over multiple years, such as heavy research or advertising costs, and is treated as revenue expenditure despite its multi-year benefits.
The document then provides examples to classify expenditures as capital, revenue or deferred revenue and discusses accounting for fixed assets including cost, revaluation, depreciation methods, and disposal.
The document discusses accounting for property, plant, and equipment (PPE) under IAS 16. It covers:
1) Companies record initial PPE costs using historical cost, which includes the purchase price and any costs to prepare the asset for use.
2) Initial costs include direct acquisition costs as well as indirect costs like installation and testing but exclude general overhead.
3) Specific components of costs are outlined for land, buildings, and self-constructed assets. Direct materials, labor, and allocated overhead must be considered.
The document outlines Tintoria Ltd's fixed asset capitalization policy. Key points include:
- Assets over Kshs 50,000 are capitalized, except for land and buildings which require a Kshs 100,000 minimum.
- Capitalizable costs include acquisition costs and improvements extending asset life.
- Assets are categorized and depreciated according to class. Land is not depreciated.
- The policy aims to comply with accounting standards and ensure proper financial reporting of fixed assets.
This document provides guidelines for accounting for and reporting fixed assets according to Generally Accepted Accounting Principles and Governmental Accounting Standards Board Statement 34. It defines what qualifies as a capital asset and establishes capitalization thresholds. It also outlines the classification, acquisition costs, donations, and categories of fixed assets including land, land improvements, buildings, equipment, and infrastructure.
INTERMEDIATE ACCOUNTING MILAN - CHAPTER 15 PPElingatong27177
This document provides an overview of accounting for property, plant, and equipment (PPE) based on Philippine Financial Reporting Standards (PFRS). It discusses the initial recognition and measurement of PPE, including the components of cost, cessation of capitalization, and methods of acquisition. The initial cost of PPE includes the purchase price, costs to prepare the asset for use, and estimated restoration costs. It provides examples of costs that are included in or expensed from the cost of common PPE assets like land, buildings, equipment. The document also discusses accounting for various modes of acquisition such as exchange, equity/debt issuance, donation, and includes related discussion questions.
This document provides an overview of accounting for property, plant, and equipment. It discusses identifying PP&E and related costs such as land, buildings, equipment, and self-constructed assets. It also covers acquiring and valuing PP&E including historical cost, cash discounts, and exchanges of nonmonetary assets. The document explains accounting for costs subsequent to acquisition, distinguishing between capitalizing costs that increase future benefits versus expensing costs that simply maintain operations. Learning objectives cover PP&E identification and costs, acquisition and valuation issues, and accounting for post-acquisition costs.
1. The document discusses accounting for costs associated with acquiring and disposing of property, plant, equipment, and intangible assets. It covers topics like capitalizing acquisition costs, allocating lump-sum purchase prices, accounting for non-cash acquisitions and donations, capitalizing self-constructed assets, and accounting for research and development costs.
2. Examples are provided for allocating costs of land and building improvements, capitalizing costs to install new equipment, accounting for patent and goodwill acquisitions, and exchanging assets in non-cash transactions.
3. The treatment of interest costs depends on whether assets are constructed for a company's own use or for sale/lease, with some interest capital
This document discusses project financing and financial analysis. It provides details on determining total investment costs, which include initial investment costs like land, buildings, equipment, and working capital. Production costs are also broken down, including factory costs, overhead, depreciation, and financing costs. Financial ratios are discussed to facilitate analysis, comparison of projects, and determine financial risk. The net present value and internal rate of return are introduced as metrics to evaluate project viability.
This document discusses project financing and feasibility analysis. It explains that a feasibility study helps determine if a proposed project will be financially viable by assessing if it can service debt obligations and provide expected returns. The study estimates total investment costs, production costs, and financial/economic viability by assembling components like land, construction, equipment, labor, and implementation costs. It also discusses calculating fixed costs, pre-production capital, working capital, and production costs with contingencies for price increases and unexpected events. The timing of expenditures and costs is important as it influences cash flow and return.
1. Capital expenditure is incurred to acquire or improve assets and bring them into working condition, while revenue expenditure maintains assets.
2. Deferred revenue expenditure provides benefits over multiple years, like research costs.
3. Expenses must be classified correctly as capital or revenue for adhering to accounting principles and showing accurate financial results.
The document discusses accounting principles related to plant assets, natural resources, and intangible assets. It covers several topics:
- Plant assets include physical resources used in business operations that are not for sale and have a useful life of multiple years.
- The cost of plant assets includes all expenditures to acquire and prepare the asset for use, such as purchase price, taxes, installation costs.
- Depreciation is the process of allocating the cost of a plant asset over its useful life. Straight-line, units-of-activity, and declining balance are common depreciation methods.
- Factors that determine depreciation expense are cost, salvage value, and useful life estimates. Deprec
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International trade allows countries to specialize and gain from exporting goods they produce cheaply while importing goods from other countries that produce them cheaply. There are direct benefits like increased income and indirect benefits like technology transfer. However, international trade can also negatively impact poorer countries if it prices out their domestic industries or leads to deterioration in their terms of trade. Trade agreements and economic integration aim to liberalize trade but have both costs and benefits that are debated. Governments use policies like tariffs and quotas to protect domestic industries from foreign competition and further other goals. Regional economic integration involves countries reducing barriers to create free trade areas, customs unions, common markets or unions with deeper coordination of economic policies.
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ACQUISITION AND DISPOSITION OF PROPERTY, PLANT AND EQUIPMENT.ppt
1. 10-1
C H A P T E R 10
ACQUISITION AND DISPOSITION OF
PROPERTY, PLANT, AND EQUIPMENT
2. 10-2
1. Describe property, plant, and equipment.
2. Identify the costs to include in initial valuation of property, plant,
and equipment.
3. Describe the accounting problems associated with self-constructed
assets.
4. Describe the accounting problems associated with interest
capitalization.
5. Understand accounting issues related to acquiring and valuing
plant assets.
6. Describe the accounting treatment for costs subsequent to
acquisition.
7. Describe the accounting treatment for the disposal of property,
plant, and equipment.
Learning Objectives
3. 10-3
Acquisition
Acquisition costs:
land, buildings,
equipment
Self-constructed
assets
Interest costs
Observations
Valuation
Cost Subsequent
to Acquisition
Dispositions
Cash discounts
Deferred contracts
Lump-sum
purchases
Stock issuance
Non-monetary
exchanges
Government
grants
Sale
Involuntary
conversion
Additions
Improvements and
replacements
Rearrangement
and reorganization
Repairs
Summary
Property, Plant, and Equipment
4. 10-4
► “Used in operations” and not for
resale.
► Long-term in nature and usually
depreciated.
► Possess physical substance.
Property, plant, and equipment is defined as tangible assets
that are held for use in production or supply of goods and
services, for rentals to others, or for administrative purposes; they
are expected to be used during more than one period.
Property, Plant, and Equipment
LO 1 Describe property, plant, and equipment.
Includes:
Land,
Building structures
(offices, factories,
warehouses), and
Equipment
(machinery, furniture,
tools).
5. 10-5
Historical cost measures the cash or cash equivalent price of
obtaining the asset and bringing it to the location and condition
necessary for its intended use.
Companies value property, plant, and equipment in
subsequent periods using either the
cost method or
fair value (revaluation) method.
Acquisition of PP&E
LO 2 Identify the costs to include in initial valuation of
property, plant, and equipment.
6. 10-6
Includes all costs to acquire land and ready it for use. Costs
typically include:
Cost of Land
Acquisition of PP&E
LO 2
(1) purchase price;
(2) closing costs, such as title to the land, attorney’s fees, and
recording fees;
(3) costs of grading, filling, draining, and clearing;
(4) assumption of any liens, mortgages, or encumbrances on
the property; and
(5) additional land improvements that have an indefinite life.
7. 10-7
Improvements with limited lives, such as private
driveways, walks, fences, and parking lots, are recorded
as Land Improvements and depreciated.
► Land acquired and held for speculation is classified
as an investment.
► Land held by a real estate concern for resale should
be classified as inventory.
Acquisition of PP&E
LO 2 Identify the costs to include in initial valuation of
property, plant, and equipment.
Cost of Land
8. 10-8
Includes all costs related directly to acquisition or
construction. Cost typically include:
Cost of Buildings
LO 2 Identify the costs to include in initial valuation of
property, plant, and equipment.
(1) materials, labor, and overhead costs incurred during
construction and
(2) professional fees and building permits.
Acquisition of PP&E
9. 10-9
Include all costs incurred in acquiring the equipment and
preparing it for use. Costs typically include:
LO 2 Identify the costs to include in initial valuation of
property, plant, and equipment.
(1) purchase price,
(2) freight and handling charges
(3) insurance on the equipment while in transit,
(4) cost of special foundations if required,
(5) assembling and installation costs, and
(6) costs of conducting trial runs.
Acquisition of PP&E
Cost of Equipment
10. 10-10
E10-1 (variation): The expenditures and receipts below are related to
land, land improvements, and buildings acquired for use in a business
enterprise. Determine how the following should be classified:
Acquisition of PP&E
(a) Money borrowed to pay building contractor
(b) Payment for construction from note proceeds
(c) Cost of land fill and clearing
(d) Delinquent real estate taxes on property
assumed
(e) Premium on 6-month insurance policy during
construction
(f) Refund of 1-month insurance premium because
construction completed early
Classification
Notes Payable
Building
Land
Land
Building
(Building)
LO 2 Identify the costs to include in initial valuation of
property, plant, and equipment.
11. 10-11
Classification
Acquisition of PP&E
(g) Architect’s fee on building
(h) Cost of real estate purchased as a plant site (land
€200,000 and building €50,000)
(i) Commission fee paid to real estate agency
(j) Installation of fences around property
(k) Cost of razing and removing building
(l) Proceeds from salvage of demolished building
(m) Cost of parking lots and driveways
(n) Cost of trees and shrubbery (permanent)
Building
LO 2
Land
Land
Land Improvements
Land
(Land)
Land Improvements
Land
E10-1 (variation): The expenditures and receipts below are related to
land, land improvements, and buildings acquired for use in a business
enterprise. Determine how the following should be classified:
12. 10-12
Self-Constructed Assets
Acquisition of PP&E
Costs typically include:
(1) Materials and direct labor
(2) 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.
LO 3 Describe the accounting problems associated with self-constructed assets.
13. 10-13
Three approaches have been suggested to account for the
interest incurred in financing the construction.
Interest Costs During Construction
Acquisition of PP&E
LO 4 Describe the accounting problems associated with interest capitalization.
Capitalize no
interest during
construction
Capitalize actual
costs incurred during
construction (with
modification)
Capitalize
all costs of
funds
IFRS
$ 0 $ ?
Increase to Cost of Asset
14. 10-14
IFRS requires — capitalizing actual interest (with
modification).
Consistent with historical cost.
Capitalization considers three items:
1. Qualifying assets.
2. Capitalization period.
3. Amount to capitalize.
Interest Costs During Construction
Acquisition of PP&E
LO 4 Describe the accounting problems associated with interest capitalization.
15. 10-15
Require a substantial period of time to get them ready for
their intended use.
Two types of assets:
► Assets under construction for a company’s own use.
► Assets intended for sale or lease that are constructed
or produced as discrete projects.
Qualifying Assets
Acquisition of PP&E
LO 4 Describe the accounting problems associated with interest capitalization.
16. 10-16
Capitalization Period
Acquisition of PP&E
LO 4 Describe the accounting problems associated with interest capitalization.
Begins when:
1. Expenditures for the asset have been made.
2. Activities for readying the asset are in progress .
3. Interest costs are being incurred.
Ends when:
The asset is substantially complete and ready for use.
17. 10-17
Amount to Capitalize
Acquisition of PP&E
LO 4 Describe the accounting problems associated with interest capitalization.
Capitalize the lesser of:
1. Actual interest costs
2. Avoidable interest - the amount of interest that could
have been avoided if expenditures for the asset had
not been made.
18. 10-18
Interest Capitalization Illustration: Blue Corporation borrowed
$200,000 at 12% interest from State Bank on Jan. 1, 2011, for specific
purposes of constructing special-purpose equipment to be used in its
operations. Construction on the equipment began on Jan. 1, 2011,
and the following expenditures were made prior to the project’s
completion on Dec. 31, 2011:
Acquisition of PP&E
LO 4 Describe the accounting problems associated with interest capitalization.
Actual Expenditures:
January 1, 2011 $100,000
April 30, 2011 150,000
November 1, 2011 300,000
December 31, 2011 100,000
Total expenditures $650,000
Other general debt existing
on Jan. 1, 2011:
$500,000, 14%, 10-year
bonds payable
$300,000, 10%, 5-year
note payable
19. 10-19
Step 1 - Determine which assets qualify for capitalization
of interest.
Special purpose equipment qualifies because it requires
a period of time to get ready and it will be used in the
company’s operations.
Acquisition of PP&E
LO 4 Describe the accounting problems associated with interest capitalization.
Step 2 - Determine the capitalization period.
The capitalization period is from Jan. 1, 2011 through
Dec. 31, 2011, because expenditures are being made
and interest costs are being incurred during this period
while construction is taking place.
20. 10-20
Acquisition of PP&E
LO 4 Describe the accounting problems associated with interest capitalization.
Weighted
Average
Actual Capitalization Accumulated
Date Expenditures Period Expenditures
Jan. 1 100,000
$ 12/12 100,000
$
Apr. 30 150,000 8/12 100,000
Nov. 1 300,000 2/12 50,000
Dec. 31 100,000 0/12 -
650,000
$ 250,000
$
Step 3 - Compute weighted-average accumulated
expenditures.
A company weights the construction expenditures by the amount of time
(fraction of a year or accounting period) that it can incur interest cost on the
expenditure.
21. 10-21
Acquisition of PP&E
LO 4 Describe the accounting problems associated with interest capitalization.
Step 4 - Compute the Actual and Avoidable Interest.
Selecting Appropriate Interest Rate:
1. For the portion of weighted-average accumulated
expenditures that is less than or equal to any amounts
borrowed specifically to finance construction of the assets,
use the interest rate incurred on the specific borrowings.
2. For the portion of weighted-average accumulated
expenditures that is greater than any debt incurred specifically
to finance construction of the assets, use a weighted
average of interest rates incurred on all other outstanding
debt during the period.
22. 10-22
Acquisition of PP&E
LO 4 Describe the accounting problems associated with interest capitalization.
Accumulated Interest Avoidable
Expenditures Rate Interest
200,000
$ 12% 24,000
$
50,000 12.5% 6,250
250,000
$ 30,250
$
Step 4 - Compute the Actual and Avoidable Interest.
Avoidable Interest
Interest Actual
Debt Rate Interest
Specific Debt 200,000
$ 12% 24,000
$
General Debt 500,000 14% 70,000
300,000 10% 30,000
1,000,000
$ 124,000
$
Weighted-average
interest rate on
general debt
Actual Interest
$100,000
$800,000
= 12.5%
23. 10-23
Step 5 – Capitalize the lesser of Avoidable interest or
Actual interest.
Acquisition of PP&E
LO 4 Describe the accounting problems associated with interest capitalization.
Avoidable interest 30,250
$
Actual interest 124,000
Journal entry to Capitalize Interest:
Equipment 30,250
Interest expense 30,250
24. 10-24
Acquisition of PP&E
LO 4 Describe the accounting problems associated with interest capitalization.
Comprehensive Illustration: On November 1, 2010,
Shalla Company contracted Pfeifer Construction Co. to
construct a building for $1,400,000 on land costing $100,000
(purchased from the contractor and included in the first
payment). Shalla made the following payments to the
construction company during 2011.
25. 10-25
Acquisition of PP&E
LO 4 Describe the accounting problems associated with interest capitalization.
Pfeifer Construction completed the building, ready for occupancy,
on December 31, 2011. Shalla had the following debt outstanding
at December 31, 2011.
Compute weighted-average accumulated expenditures for 2011.
Specific Construction Debt
1. 15%, 3-year note to finance purchase of land and
construction of the building, dated December 31, 2010, with
interest payable annually on December 31
Other Debt
2. 10%, 5-year note payable, dated December 31, 2007, with
interest payable annually on December 31
3. 12%, 10-year bonds issued December 31, 2006, with
interest payable annually on December 31
$750,000
$550,000
$600,000
26. 10-26
Acquisition of PP&E
LO 4 Describe the accounting problems associated with interest capitalization.
Compute weighted-average accumulated expenditures for 2011.
Illustration 10-4
27. 10-27
Acquisition of PP&E
LO 4 Describe the accounting problems associated with interest capitalization.
Compute the avoidable interest.
Illustration 10-5
28. 10-28
Acquisition of PP&E
LO 4 Describe the accounting problems associated with interest capitalization.
Compute the actual interest cost, which represents the
maximum amount of interest that it may capitalize during 2011,
Illustration 10-6
The interest cost that Shalla capitalizes is the lesser of
$120,228 (avoidable interest) and $239,500 (actual interest), or
$120,228.
29. 10-29
Acquisition of PP&E
LO 4 Describe the accounting problems associated with interest capitalization.
Shalla records the following journal entries during 2011:
January 1 Land 100,000
Building (or CIP) 110,000
Cash 210,000
March 1 Building 300,000
Cash 300,000
May 1 Building 540,000
Cash 540,000
December 31 Building 450,000
Cash 450,000
Building (Capitalized Interest) 120,228
Interest Expense 119,272
Cash 239,500
30. 10-30
Acquisition of PP&E
LO 4 Describe the accounting problems associated with interest capitalization.
At December 31, 2011, Shalla discloses the amount of interest
capitalized either as part of the income statement or in the
notes accompanying the financial statements.
Illustration 10-7
Illustration 10-8
31. 10-31
Acquisition of PP&E
LO 4 Describe the accounting problems associated with interest capitalization.
Special Issues Related to Interest Capitalization
1. Expenditures for land.
► Interest costs capitalized are part of the cost of the
plant, not the land.
2. Interest revenue.
► Interest revenue should be offset against interest
cost when determining the amount of interest to
capitalized.
32. 10-32
Companies should record property, plant, and equipment:
► at the fair value of what they give up or
► at the fair value of the asset received,
whichever is more clearly evident.
Valuation of PP&E
LO 5 Understand accounting issues related to acquiring and valuing plant assets.
33. 10-33
Cash Discounts — Whether taken or not — generally
considered a reduction in the cost of the asset.
Deferred-Payment Contracts — Assets, purchased through
long term credit, are recorded at the present value of the
consideration exchanged.
Lump-Sum Purchases — Allocate the total cost among the
various assets on the basis of their fair market values.
Issuance of Shares — The market value of the shares issued
is a fair indication of the cost of the property acquired.
Valuation of PP&E
LO 5 Understand accounting issues related to acquiring and valuing plant assets.
34. 10-34
Valuation of PP&E
LO 5 Understand accounting issues related to acquiring and valuing plant assets.
Ordinarily accounted for on the basis of:
► the fair value of the asset given up or
► the fair value of the asset received,
whichever is clearly more evident.
Exchanges of Nonmonetary Assets
Companies should recognize immediately any gains or losses
on the exchange when the transaction has commercial
substance.
35. 10-35
Valuation of PP&E
LO 5 Understand accounting issues related to acquiring and valuing plant assets.
Meaning of Commercial Substance
Exchange has commercial substance if the future cash flows
change as a result of the transaction.
That is, if the two parties’ economic positions change, the
transaction has commercial substance.
Illustration 10-10
36. 10-36
Valuation of PP&E
LO 5 Understand accounting issues related to acquiring and valuing plant assets.
Companies recognize a loss immediately whether the
exchange has commercial substance or not.
Rationale: Companies should not value assets at more than
their cash equivalent price; if the loss were deferred, assets
would be overstated.
Exchanges - Loss Situation
37. 10-37
Valuation of PP&E
LO 5 Understand accounting issues related to acquiring and valuing plant assets.
Illustration: Information Processing, Inc. trades its used machine for a
new model at Jerrod Business Solutions Inc. The exchange has
commercial substance. The used machine has a book value of $8,000
(original cost $12,000 less $4,000 accumulated depreciation) and a fair
value of $6,000. The new model lists for $16,000. Jerrod gives
Information Processing a trade-in allowance of $9,000 for the used
machine. Information Processing computes the cost of the new asset
as follows.
Illustration 10-11
38. 10-38
Equipment 13,000
Accumulated Depreciation—Equipment 4,000
Loss on Disposal of Equipment 2,000
Equipment 12,000
Cash 7,000
Valuation of PP&E
LO 5 Understand accounting issues related to acquiring and valuing plant assets.
Illustration: Information Processing records this transaction as
follows:
Illustration 10-12
Loss on
Disposal
39. 10-39
Valuation of PP&E
LO 5 Understand accounting issues related to acquiring and valuing plant assets.
Exchanges - Gain Situation
Has Commercial Substance. Company usually records the
cost of a nonmonetary asset acquired in exchange for
another nonmonetary asset at the fair value of the asset
given up, and immediately recognizes a gain.
40. 10-40
Valuation of PP&E
LO 5 Understand accounting issues related to acquiring and valuing plant assets.
Illustration: Interstate Transportation Company exchanged a number
of used trucks plus cash for a semi-truck. The used trucks have a
combined book value of $42,000 (cost $64,000 less $22,000
accumulated depreciation). Interstate’s purchasing agent,
experienced in the second-hand market, indicates that the used trucks
have a fair market value of $49,000. In addition to the trucks,
Interstate must pay $11,000 cash for the semi-truck. Interstate
computes the cost of the semi-truck as follows.
Illustration 10-13
41. 10-41
Semi-truck 60,000
Accumulated Depreciation—Trucks 22,000
Trucks 64,000
Gain on disposal of Used Trucks 7,000
Cash 11,000
Valuation of PP&E
LO 5 Understand accounting issues related to acquiring and valuing plant assets.
Illustration: Interstate records the exchange transaction as follows:
Illustration 10-14
Gain on
Disposal
42. 10-42
Valuation of PP&E
LO 5 Understand accounting issues related to acquiring and valuing plant assets.
Exchanges - Gain Situation
Lacks Commercial Substance.
Now assume that Interstate Transportation Company
exchange lacks commercial substance. That is, the
economic position of Interstate did not change significantly
as a result of this exchange. In this case, Interstate defers
the gain of $7,000 and reduces the basis of the semi-truck.
43. 10-43
Semi-truck 53,000
Accumulated Depreciation—Trucks 22,000
Trucks 64,000
Cash 11,000
Valuation of PP&E
LO 5 Understand accounting issues related to acquiring and valuing plant assets.
Illustration: Interstate records the exchange transaction as
follows:
Illustration 10-15
44. 10-44
Valuation of PP&E
LO 5 Understand accounting issues related to acquiring and valuing plant assets.
Summary of Gain and Loss Recognition
on Exchanges of Non-Monetary Assets
Disclosure include:
nature of the transaction(s),
method of accounting for the assets exchanged, and
gains or losses recognized on the exchanges.
Illustration 10-16
45. 10-45
E10-19: Santana Company exchanged equipment used in its
manufacturing operations plus $2,000 in cash for similar equipment
used in the operations of Delaware Company. The following
information pertains to the exchange.
LO 5 Understand accounting issues related to acquiring and valuing plant assets.
Santana Delaware
Equipment (cost) $28,000 $28,000
Accumulated Depreciation 19,000 10,000
Fair value of equipment 13,500 15,500
Cash given up 2,000
Instructions: Prepare the journal entries to record the exchange on
the books of both companies.
Valuation of PP&E
46. 10-46
Calculation of Gain or Loss
LO 5 Understand accounting issues related to acquiring and valuing plant assets.
Santana Delaware
Fair value of equipment received $15,500 $13,500
Cash received / paid (2,000) 2,000
Less: Bookvalue of equipment
($28,000-19,000) (9,000)
($28,000-10,000) (18,000)
Gain or (Loss) on Exchange $4,500 ($2,500)
Valuation of PP&E
47. 10-47
Has Commercial Substance
LO 5 Understand accounting issues related to acquiring and valuing plant assets.
Santana:
Equipment 15,500
Accumulated depreciation 19,000
Cash 2,000
Equipment 28,000
Gain on exchange 4,500
Delaware:
Cash 2,000
Equipment 13,500
Accumulated depreciation 10,000
Loss on exchange 2,500
Equipment 28,000
Valuation of PP&E
48. 10-48 LO 5 Understand accounting issues related to acquiring and valuing plant assets.
Santana (Has Commercial Substance):
Equipment 15,500
Accumulated depreciation 19,000
Cash 2,000
Equipment 28,000
Gain on disposal of equipment 4,500
Valuation of PP&E
Santana (LACKS Commercial Substance):
Equipment (15,500 – 4,500) 11,000
Accumulated depreciation 19,000
Cash 2,000
Equipment 28,000
49. 10-49 LO 5 Understand accounting issues related to acquiring and valuing plant assets.
Delaware (Has Commercial Substance):
Valuation of PP&E
Delaware (LACKS Commercial Substance):
Cash 2,000
Equipment 13,500
Accumulated depreciation 10,000
Loss on disposal of equipment 2,500
Equipment 28,000
Cash 2,000
Equipment 13,500
Accumulated depreciation 10,000
Loss on disposal of equipment 2,500
Equipment 28,000
50. 10-50
Valuation of PP&E
LO 5 Understand accounting issues related to acquiring and valuing plant assets.
Grants are assistance received from a government in the form
of transfers of resources to a company in return for past or
future compliance with certain conditions relating to the
operating activities of the company.
IFRS requires grants to be recognized in income (income
approach) on a systematic basis that matches them with the
related costs that they are intended to compensate.
Government Grants
51. 10-51
Valuation of PP&E
LO 5 Understand accounting issues related to acquiring and valuing plant assets.
Example 1: Grant for Lab Equipment. AG Company received a
€500,000 subsidy from the government to purchase lab equipment on
January 2, 2011. The lab equipment cost is €2,000,000, has a useful
life of five years, and is depreciated on the straight-line basis.
IFRS allows AG to record this grant in one of two ways:
1. Credit Deferred Grant Revenue for the subsidy and amortize
the deferred grant revenue over the five-year period.
2. Credit the lab equipment for the subsidy and depreciate this
amount over the five-year period.
52. 10-52
Valuation of PP&E
LO 5 Understand accounting issues related to acquiring and valuing plant assets.
Example 1: Grant for Lab Equipment. If AG chooses to record
deferred revenue of $500,000, it amortizes this amount over the
five-year period to income ($100,000 per year). The effects on the
financial statements at December 31, 2011, are:
Illustration 10-17
53. 10-53
Valuation of PP&E
LO 5 Understand accounting issues related to acquiring and valuing plant assets.
Example 1: Grant for Lab Equipment. If AG chooses to reduce
the cost of the lab equipment, AG reports the equipment at
€1,500,000 (€2,000,000 - €500,000) and depreciates this amount
over the five-year period. The effects on the financial statements at
December 31, 2011, are:
Illustration 10-18
54. 10-54
Valuation of PP&E
LO 5 Understand accounting issues related to acquiring and valuing plant assets.
When a company contributes a non-monetary asset, it should
record the amount of the donation as an expense at the fair
value of the donated asset.
Illustration: Kline Industries donates land to the City of San
Paulo for a city park. The land cost $80,000 and has a fair value
of $110,000. Kline Industries records this donation as follows.
Contribution Expense 110,000
Land 80,000
Gain on Disposal of Land 30,000
Contributions
55. 10-55
Costs Subsequent to Acquisition
LO 6 Describe the accounting treatment for costs subsequent to acquisition.
Recognize costs subsequent to acquisition as an asset when
the costs can be
► measured reliably and
► it is probable that the company will obtain future economic
benefits.
Future economic benefit would include increases in
1. useful life,
2. quantity of product produced, and
3. quality of product produced.
57. 10-57
Disposition of PP&E
LO 7 Describe the accounting treatment for the
disposal of property, plant, and equipment.
A company may retire plant assets voluntarily or dispose of
them by
sale,
exchange,
involuntary conversion, or
abandonment.
Depreciation must be taken up to the date of disposition.
58. 10-58
Disposition of PP&E
Sale of Plant Assets
BE10-15: Ottawa Corporation owns machinery that cost
$20,000 when purchased on July 1, 2007. Depreciation has
been recorded at a rate of $2,400 per year, resulting in a
balance in accumulated depreciation of $8,400 at December 31,
2010. The machinery is sold on September 1, 2011, for
$10,500.
Prepare journal entries to
a) update depreciation for 2011 and
b) record the sale.
LO 7 Describe the accounting treatment for the
disposal of property, plant, and equipment.
59. 10-59
a) Depreciation for 2011
Depreciation expense ($2,400 x 8/12) 1,600
Accumulated depreciation 1,600
b) Record the sale
Cash 10,500
Accumulated depreciation 10,000
Machinery 20,000
Gain on sale 500
Disposition of PP&E
* $8,400 + $1,600 = $10,000
*
LO 7 Describe the accounting treatment for the
disposal of property, plant, and equipment.
60. 10-60
Sometimes an asset’s service is terminated through some type
of involuntary conversion such as fire, flood, theft, or
condemnation.
Companies report the difference between the amount
recovered (e.g., from a condemnation award or insurance
recovery), if any, and the asset’s book value as a gain or loss.
They treat these gains or losses like any other type of
disposition.
Involuntary Conversion
Disposition of PP&E
LO 7 Describe the accounting treatment for the
disposal of property, plant, and equipment.