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.
This chapter discusses accounting for long-lived assets such as property, plant, and equipment. It covers depreciation methods which allocate the cost of tangible assets over their estimated useful lives. Specific methods discussed include straight-line, activity, and diminishing-charge methods. The chapter also addresses component depreciation and accounting for partial periods. Asset impairment and depletion of mineral resources are additional topics covered.
ACQUISITION AND DISPOSITION OF PROPERTY, PLANT AND EQUIPMENT.pptJaafar47
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
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.
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.
This chapter discusses inventory valuation and classification. It covers the following key points:
1. There are two main types of businesses - merchandising and manufacturing companies. Merchandising companies have one inventory account while manufacturing companies have multiple inventory accounts for raw materials, work in process, and finished goods.
2. There are two main inventory systems - perpetual and periodic. The perpetual system continuously updates inventory balances while the periodic system relies on a physical count at the end of the period.
3. Inventory includes goods owned by the company as well as some goods on consignment or sold with a right of return. Inventory errors can misstate financial statements in the current or subsequent periods depending on the type of
This chapter discusses accounting for long-lived assets such as property, plant, and equipment. It covers depreciation methods which allocate the cost of tangible assets over their estimated useful lives. Specific methods discussed include straight-line, activity, and diminishing-charge methods. The chapter also addresses component depreciation and accounting for partial periods. Asset impairment and depletion of mineral resources are additional topics covered.
ACQUISITION AND DISPOSITION OF PROPERTY, PLANT AND EQUIPMENT.pptJaafar47
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
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.
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.
This chapter discusses inventory valuation and classification. It covers the following key points:
1. There are two main types of businesses - merchandising and manufacturing companies. Merchandising companies have one inventory account while manufacturing companies have multiple inventory accounts for raw materials, work in process, and finished goods.
2. There are two main inventory systems - perpetual and periodic. The perpetual system continuously updates inventory balances while the periodic system relies on a physical count at the end of the period.
3. Inventory includes goods owned by the company as well as some goods on consignment or sold with a right of return. Inventory errors can misstate financial statements in the current or subsequent periods depending on the type of
Based on the information provided:
Short-term obligation A should be reported as a current liability at December 31, 2010 because Hendricks does not have an unconditional right to defer settlement for at least 12 months after the reporting date.
Short-term obligation B should be reported as a long-term liability at December 31, 2010 because Hendricks intends to refinance the obligation on a long-term basis and has an unconditional right to defer settlement for at least 12 months after the reporting date.
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 provides an overview of adjusting entries and related accounting concepts. It begins with explaining the time period assumption and how accountants divide a business's economic life into artificial time periods. Then it discusses the accrual basis of accounting and how revenues are recognized when earned and expenses are recognized when incurred. The reasons for adjusting entries are to ensure revenues and expenses are recorded in the proper periods according to accrual accounting. The major types of adjusting entries are identified as those for deferrals, such as prepaid expenses and unearned revenues, and those for accruals, such as accrued revenues and accrued expenses. Instructions and examples are provided for preparing adjusting entries for deferrals.
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.
The document discusses accounting for intangible assets such as goodwill, patents, trademarks, and research and development costs. It describes characteristics of intangible assets, how to value and amortize them, types of intangibles including goodwill, procedures for recording goodwill, accounting for impairment of intangibles, conceptual issues and accounting treatment for research and development costs.
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.
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.
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.
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.
IFRS 9 / Ind AS 109 Impairment of Financial AssetDhiraj Gadiyani
The document provides an overview and training on the Expected Credit Loss model. It discusses the objectives of understanding the ECL model and its potential impact on bank financial statements. The training covers the model overview, implementation approach, use of macroeconomic forecasts and forward-looking information, and comparison of the ECL framework to BASEL norms. It also addresses scope/coverage of the model, presentation in financial statements, and assessment.
Valuation of Inventories: A Cost-Basis Approachreskino1
Describe inventory classifications and different inventory systems.
Identify the goods and costs included in inventory.
Compare the cost flow assumptions used to account for inventories.
Determine the effects of inventory errors on the financial statements.
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.
After studying this chapter, you should be able to:
1. Discuss the characteristics, valuation, and amortization of intangible assets.
2. Describe the accounting for various types of intangible assets.
3. Explain the accounting issues for recording goodwill.
4. Identify impairment procedures and presentation requirements for intangible assets.
5. Describe the accounting and presentation for research and development and similar costs.
FA II CH 3 current liab, contan, prov.pptxbikila hussen
This document provides an overview and learning objectives for a chapter on current liabilities, provisions, and contingencies. The key topics covered include:
1. Describing the nature, types, and valuation of current liabilities such as accounts payable, notes payable, income taxes payable, and employee-related liabilities.
2. Explaining the classification of short-term debt expected to be refinanced and identifying whether it should be classified as a current or non-current liability.
3. Explaining the accounting for provisions, contingent liabilities, and contingent assets.
The document outlines the chapter's learning objectives and indicates students should be able to explain, identify, and indicate accounting
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.
Based on the information provided:
Short-term obligation A should be reported as a current liability at December 31, 2010 because Hendricks does not have an unconditional right to defer settlement for at least 12 months after the reporting date.
Short-term obligation B should be reported as a long-term liability at December 31, 2010 because Hendricks intends to refinance the obligation on a long-term basis and has an unconditional right to defer settlement for at least 12 months after the reporting date.
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 provides an overview of adjusting entries and related accounting concepts. It begins with explaining the time period assumption and how accountants divide a business's economic life into artificial time periods. Then it discusses the accrual basis of accounting and how revenues are recognized when earned and expenses are recognized when incurred. The reasons for adjusting entries are to ensure revenues and expenses are recorded in the proper periods according to accrual accounting. The major types of adjusting entries are identified as those for deferrals, such as prepaid expenses and unearned revenues, and those for accruals, such as accrued revenues and accrued expenses. Instructions and examples are provided for preparing adjusting entries for deferrals.
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.
The document discusses accounting for intangible assets such as goodwill, patents, trademarks, and research and development costs. It describes characteristics of intangible assets, how to value and amortize them, types of intangibles including goodwill, procedures for recording goodwill, accounting for impairment of intangibles, conceptual issues and accounting treatment for research and development costs.
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.
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.
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.
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.
IFRS 9 / Ind AS 109 Impairment of Financial AssetDhiraj Gadiyani
The document provides an overview and training on the Expected Credit Loss model. It discusses the objectives of understanding the ECL model and its potential impact on bank financial statements. The training covers the model overview, implementation approach, use of macroeconomic forecasts and forward-looking information, and comparison of the ECL framework to BASEL norms. It also addresses scope/coverage of the model, presentation in financial statements, and assessment.
Valuation of Inventories: A Cost-Basis Approachreskino1
Describe inventory classifications and different inventory systems.
Identify the goods and costs included in inventory.
Compare the cost flow assumptions used to account for inventories.
Determine the effects of inventory errors on the financial statements.
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.
After studying this chapter, you should be able to:
1. Discuss the characteristics, valuation, and amortization of intangible assets.
2. Describe the accounting for various types of intangible assets.
3. Explain the accounting issues for recording goodwill.
4. Identify impairment procedures and presentation requirements for intangible assets.
5. Describe the accounting and presentation for research and development and similar costs.
FA II CH 3 current liab, contan, prov.pptxbikila hussen
This document provides an overview and learning objectives for a chapter on current liabilities, provisions, and contingencies. The key topics covered include:
1. Describing the nature, types, and valuation of current liabilities such as accounts payable, notes payable, income taxes payable, and employee-related liabilities.
2. Explaining the classification of short-term debt expected to be refinanced and identifying whether it should be classified as a current or non-current liability.
3. Explaining the accounting for provisions, contingent liabilities, and contingent assets.
The document outlines the chapter's learning objectives and indicates students should be able to explain, identify, and indicate accounting
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.
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.
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.
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.
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.
This document discusses capital and revenue expenditures. Capital expenditures are incurred to acquire or improve assets used in business operations. Examples include purchasing machinery. Revenue expenditures are incurred to maintain assets and operate the business, like repairs and salaries. Deferred revenue expenditures provide benefits over multiple years, like research costs. Expenses must be classified correctly for financial reporting purposes like adhering to the matching principle and providing a true and fair view of financial performance.
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
The document discusses capital and revenue expenditures. Capital expenditures acquire or improve assets and benefit the business for more than one year. Revenue expenditures maintain assets and operate the business. Deferred revenue expenditures are revenue in nature but provide benefits for more than one year, like research costs. Assets must be classified correctly to follow accounting principles and show accurate financial results.
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.
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.
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
Here are the journal entries for the events:
a. Buildings +212.0
Equipment +30.4
Cash - 43.2
Notes payable (long-term) +199.2
b. Cash +186.6
Contributed capital +186.6
c. Retained earnings -121.4
Dividends payable +121.4
d. Cash +45.2
Accounts receivable +45.2
e. Accounts payable -37.8
Cash -37.8
Req. 2
The accounting equation remains in balance after each transaction.
Assets = Liabilities + Stockholders' Equity
Buildings +212.
This document discusses accounting standards for investment property. It defines investment property and outlines how to initially recognize, subsequently measure, and transfer property within the investment property classification. The key points are:
1) Investment property is property held to earn rentals or for capital appreciation. It is initially recognized at cost and can subsequently be measured at fair value or cost depending on whether fair value can be reliably measured.
2) If fair value can be reliably measured, investment property is carried at fair value after initial recognition. Otherwise, it is carried at cost less depreciation and impairment.
3) If fair value becomes reliably measurable, the property transfers to the fair value model. If fair value becomes unreliable, it transfers
1Acquisition cost of long-lived assets the following items repr.docxfelicidaddinwoodie
1
Acquisition cost of long-lived assets: the following items represent expenditures (or receipts) related to construction of a new home office for Lowery company.
Cost of land site, which include an old apartment building appraised at $75,000 $165,000
Legal fees, including fee for title search $2100
Payment of apartment building mortgage and related interest due at time of sale $9300
Payment for delinquent property taxes assumed by the purchaser $4000
Cost of razing the apartment building $17,000
Proceeds from sale of salvaged materials ($3800)
Grading to establish proper drainage flow on land site $1900
Architects fee on new building $300,000
Proceeds from sales of excess dirt (from basement excavation) to owner of adjoining property (that was used to fill in a low area on property) ($2000)
Payment to building contractor $5,000,000
Payment of medical bills of employee accidentally injured while inspecting building construction
$1400
Special assessment for paving city sidewalks (paid to city) $18,000
Cost of paving driveway parking lot $25,000
Cost of installing lights in parking lot $9200
Premium for insurance on building during construction $7500
Cost of open house party to celebrate the opening of new building $8000
Required
From the given data, calculate the proper balances for land, building, and land improvements accounts of Lowery Company.
2
Depreciation method: on January 2, Roth Inc. purchased a laser cutting machine to be used in the fabrication of a part for one of its key products. The machine cost $80,000, and its estimated useful life was four years or 1 million cuttings, after which it could be sold for $5000.
Required
Calculate the depreciation expense for each year of the machines useful life under each of the following depreciation methods:
a. straight-line
b. double declining balance
c. Units of production. Assume annual production and cuttings of:
a. 200,000
b. 350,000
c. 260,000
d. 190,000
3
Depreciation method: on January 2, 2012, Alvarez Company purchased an electroplating machine to help manufacture a part for one of its key products. The machine cost $218,700 and was estimated to have a useful life of six years or 700,000 pleadings, after which it could be sold for $23,400.
Required
a. calculate each year’s depreciation expense for the period 2012-2017 under each of the following depreciation methods:
1. straight-line
2. double declining balance
3. Units of production. (Assume annual production in pleadings of:
i. 140,000
ii. 180,000
iii. 100,000
iv. 110,000
v. 80,000
vi. 90,000
b. Assume that the machine was purchased on September 1, 2012. Calculate each year’s depreciation expense for the period 2012 through 2018 under each of the following depreciation methods:
1. straight-line
2. double declining balance
4
Accounting for planting and intangible assets: selected transactions of Continental publishers Inc., ...
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 discusses accounting standards for fixed and intangible assets. It defines fixed assets as assets used for producing goods or services that are not intended for resale, and provides examples such as land, buildings, and equipment. It also discusses how fixed assets are recorded at either historical cost or revalued price. Intangible assets are defined as non-physical rights that provide long-term benefits, including patents, copyrights, trademarks, and goodwill from business acquisitions. Specific types of intangible assets like patents, trademarks, and goodwill are further described.
A workshop hosted by the South African Journal of Science aimed at postgraduate students and early career researchers with little or no experience in writing and publishing journal articles.
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This presentation includes basic of PCOS their pathology and treatment and also Ayurveda correlation of PCOS and Ayurvedic line of treatment mentioned in classics.
Executive Directors Chat Leveraging AI for Diversity, Equity, and InclusionTechSoup
Let’s explore the intersection of technology and equity in the final session of our DEI series. Discover how AI tools, like ChatGPT, can be used to support and enhance your nonprofit's DEI initiatives. Participants will gain insights into practical AI applications and get tips for leveraging technology to advance their DEI goals.
How to Make a Field Mandatory in Odoo 17Celine George
In Odoo, making a field required can be done through both Python code and XML views. When you set the required attribute to True in Python code, it makes the field required across all views where it's used. Conversely, when you set the required attribute in XML views, it makes the field required only in the context of that particular view.
A review of the growth of the Israel Genealogy Research Association Database Collection for the last 12 months. Our collection is now passed the 3 million mark and still growing. See which archives have contributed the most. See the different types of records we have, and which years have had records added. You can also see what we have for the future.
How to Setup Warehouse & Location in Odoo 17 InventoryCeline George
In this slide, we'll explore how to set up warehouses and locations in Odoo 17 Inventory. This will help us manage our stock effectively, track inventory levels, and streamline warehouse operations.
How to Fix the Import Error in the Odoo 17Celine George
An import error occurs when a program fails to import a module or library, disrupting its execution. In languages like Python, this issue arises when the specified module cannot be found or accessed, hindering the program's functionality. Resolving import errors is crucial for maintaining smooth software operation and uninterrupted development processes.
ISO/IEC 27001, ISO/IEC 42001, and GDPR: Best Practices for Implementation and...PECB
Denis is a dynamic and results-driven Chief Information Officer (CIO) with a distinguished career spanning information systems analysis and technical project management. With a proven track record of spearheading the design and delivery of cutting-edge Information Management solutions, he has consistently elevated business operations, streamlined reporting functions, and maximized process efficiency.
Certified as an ISO/IEC 27001: Information Security Management Systems (ISMS) Lead Implementer, Data Protection Officer, and Cyber Risks Analyst, Denis brings a heightened focus on data security, privacy, and cyber resilience to every endeavor.
His expertise extends across a diverse spectrum of reporting, database, and web development applications, underpinned by an exceptional grasp of data storage and virtualization technologies. His proficiency in application testing, database administration, and data cleansing ensures seamless execution of complex projects.
What sets Denis apart is his comprehensive understanding of Business and Systems Analysis technologies, honed through involvement in all phases of the Software Development Lifecycle (SDLC). From meticulous requirements gathering to precise analysis, innovative design, rigorous development, thorough testing, and successful implementation, he has consistently delivered exceptional results.
Throughout his career, he has taken on multifaceted roles, from leading technical project management teams to owning solutions that drive operational excellence. His conscientious and proactive approach is unwavering, whether he is working independently or collaboratively within a team. His ability to connect with colleagues on a personal level underscores his commitment to fostering a harmonious and productive workplace environment.
Date: May 29, 2024
Tags: Information Security, ISO/IEC 27001, ISO/IEC 42001, Artificial Intelligence, GDPR
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3. 10-3
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.
After studying this chapter, you should be able to:
Acquisition and Disposition of
Property, Plant, and
Equipment10
LEARNING OBJECTIVES
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.
4. 10-4
► “Used in operations” and not for
resale.
► Long-term in nature and usually
depreciated.
► Possess physical substance.
Property, plant, and equipment are assets of a durable nature.
Other terms commonly used are plant assets and fixed assets.
PROPERTY, PLANT, AND EQUIPMENT
Includes:
Land,
Building structures
(offices, factories,
warehouses), and
Equipment
(machinery, furniture,
tools).
LO 1
5. 10-5
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.
After studying this chapter, you should be able to:
Acquisition and Disposition of
Property, Plant, and
Equipment10
LEARNING OBJECTIVES
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.
6. 10-6
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.
ACQUISITION OF PROPERTY, PLANT,
AND EQUIPMENT (PP&E)
In general, costs include:
1. Purchase price, including import duties and non-refundable
purchase taxes, less trade discounts and rebates.
2. Costs attributable to bringing the asset to the location and
condition necessary for it to be used in a manner intended
by the company.
LO 2
7. 10-7
ACQUISITION OF PROPERTY, PLANT,
AND EQUIPMENT (PP&E)
Companies value property, plant, and equipment in
subsequent periods using either the
cost method or
fair value (revaluation) method.
LO 2
8. 10-8
All expenditures made to acquire land and ready it for use.
Costs typically include:
Cost of Land
(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.
ACQUISITION OF PP&E
LO 2
9. 10-9
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.
Cost of Land
ACQUISITION OF PP&E
LO 2
10. 10-10
Includes all expenditures related directly to acquisition or
construction. Costs include:
materials, labor, and overhead costs incurred during
construction and
professional fees and building permits.
Companies consider all costs incurred, from excavation to
completion, as part of the building costs.
Cost of Buildings
ACQUISITION OF PP&E
LO 2
11. 10-11
Cost of Equipment
Include all expenditures incurred in acquiring the equipment
and preparing it for use. Costs include:
purchase price,
freight and handling charges,
insurance on the equipment while in transit,
cost of special foundations if required,
assembling and installation costs, and
costs of conducting trial runs.
ACQUISITION OF PP&E
LO 2
12. 10-12
a. Money borrowed to pay building contractor
(signed a note)
b. Payment for construction from note proceeds
c. Cost of land fill and clearing
d. Delinquent real estate taxes on property
assumed by purchaser
e. Premium on 6-month insurance policy during
construction
Illustration: 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. Notes Payable
b. Buildings
c. Land
d. Land
e. Buildings
LO 2
13. 10-13
f. Refund of 1-month insurance premium
because construction completed early
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. Cost of razing and removing building
k. Installation of fences around property
Illustration: Determine how the following should be classified:
ACQUISITION OF PP&E
f. (Buildings)
g. Buildings
h. Land
i. Land
j. Land
k. Land
Improvements
LO 2
14. 10-14
l. Proceeds from residual value of demolished
building
m. Interest paid during construction on money
borrowed for construction
n. Cost of parking lots and driveways
o. Cost of trees and shrubbery planted
(permanent in nature)
p. Excavation costs for new building
Illustration: Determine how the following should be classified:
ACQUISITION OF PP&E
l. (Land)
m. Buildings
n. Land
Improvements
o. Land
p. Buildings
LO 2
15. 10-15
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.
After studying this chapter, you should be able to:
Acquisition and Disposition of
Property, Plant, and
Equipment10
LEARNING OBJECTIVES
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.
16. 10-16
Self-Constructed Assets
Costs include:
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.
ACQUISITION OF PP&E
LO 3
17. 10-17
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.
After studying this chapter, you should be able to:
Acquisition and Disposition of
Property, Plant, and
Equipment10
LEARNING OBJECTIVES
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.
18. 10-18
Three approaches have been suggested to account for the
interest incurred in financing the construction.
Interest Costs During Construction
Capitalize no
interest during
construction
Capitalize
all costs of
funds
IFRS
$ 0 $ ?
Increase to Cost of Asset
ILLUSTRATION 10-1
Capitalization of Interest
Costs
Capitalize actual
costs incurred during
construction
ACQUISITION OF PP&E
LO 4
19. 10-19
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
20. 10-20
Require a substantial period of time to get them ready for
their intended use or sale.
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
Interest Costs During Construction
LO 4
21. 10-21
Capitalization Period
Begins when:
1. Expenditures for the assets are being incurred.
2. Activities for readying the asset for use or sale are
in progress .
3. Interest costs are being incurred.
Ends when:
The asset is substantially complete and ready for use.
Interest Costs During Construction
LO 4
22. 10-22
Amount to Capitalize
Capitalize the lesser of:
1. Actual interest cost incurred.
2. Avoidable interest - the amount of interest cost during
the period that a company could theoretically avoid if it
had not made expenditures for the asset.
Interest Costs During Construction
LO 4
23. 10-23
Illustration: Assume a company borrowed $200,000 at 12% interest
from State Bank on Jan. 1, 2015, for specific purposes of constructing
special-purpose equipment to be used in its operations. Construction on
the equipment began on Jan. 1, 2015, and the following expenditures
were made prior to the project’s completion on Dec. 31, 2015:
Actual Expenditures during 2015:
January 1 $ 100,000
April 30 150,000
November 1 300,000
December 31 100,000
Total expenditures $ 650,000
Other general debt existing on
Jan. 1, 2015:
$500,000, 14%, 10-year
bonds payable
$300,000, 10%, 5-year
note payable
Interest Costs During Construction
LO 4
24. 10-24
Step 1 - Determine which assets qualify for capitalization of
interest.
Special purpose equipment qualifies because it requires a period of
time to get ready and it will be used in the company’s operations.
Step 2 - Determine the capitalization period.
The capitalization period is from Jan. 1, 2015 through Dec. 31, 2015,
because expenditures are being made and interest costs are being
incurred during this period while construction is taking place.
Interest Costs During Construction
LO 4
25. 10-25
Weighted
Average
Actual Capitalization Accumulated
Date Expenditures Period Expenditures
Jan. 1 100,000$ 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$
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.
Step 3 - Compute weighted-average accumulated expenditures.
Interest Costs During Construction
LO 4
26. 10-26
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.
Step 4 - Compute the Actual and Avoidable Interest.
Interest Costs During Construction
LO 4
27. 10-27
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
$800,000
= 12.5%
Interest Costs During Construction
LO 4
28. 10-28
Avoidable interest 30,250$
Actual interest 124,000
Journal entry to Capitalize Interest:
Equipment 30,250
Interest Expense 30,250
Step 5 – Capitalize the lesser of Avoidable interest or Actual
interest.
Interest Costs During Construction
LO 4
29. 10-29
Comprehensive Illustration: On November 1, 2014, 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 2015.
Interest Costs During Construction
LO 4
30. 10-30
Pfeifer Construction completed the building, ready for occupancy, on
December 31, 2015. Shalla had the following debt outstanding at
December 31, 2015.
Compute weighted-average accumulated expenditures for 2015.
Specific Construction Debt
1. 15%, 3-year note to finance purchase of land and
construction of the building, dated December 31, 2014, with
interest payable annually on December 31
Other Debt
2. 10%, 5-year note payable, dated December 31, 2011, with
interest payable annually on December 31
3. 12%, 10-year bonds issued December 31, 2010, with
interest payable annually on December 31
$750,000
$550,000
$600,000
Interest Costs During Construction
LO 4
31. 10-31
Compute weighted-average accumulated expenditures for 2015.
Interest Costs During Construction
ILLUSTRATION 10-4
Computation of Weighted-Average
Accumulated Expenditures
LO 4
33. 10-33
Compute the actual interest cost, which represents the maximum
amount of interest that it may capitalize during 2015.
The interest cost that Shalla capitalizes is the
lesser of $120,228 (avoidable interest) and
$239,500 (actual interest), or $120,228.
Interest Costs During Construction
ILLUSTRATION 10-6
Computation of Actual
Interest Cost
LO 4
34. 10-34
Shalla records the following journal entries during 2015:
January 1 Land 100,000
Buildings (or CIP) 110,000
Cash 210,000
March 1 Buildings 300,000
Cash 300,000
May 1 Buildings 540,000
Cash 540,000
December 31 Buildings 450,000
Cash 450,000
Buildings (Capitalized Interest) 120,228
Interest Expense 119,272
Cash 239,500
Interest Costs During Construction
LO 4
35. 10-35
At December 31, 2015, Shalla discloses the amount of interest
capitalized either as part of the income statement or in the notes
accompanying the financial statements.
Interest Costs During Construction
ILLUSTRATION 10-7
Capitalized Interest
Reported in the Income
Statement
ILLUSTRATION 10-8
Capitalized Interest
Disclosed in a Note
LO 4
36. 10-36
Special Issues Related to Interest Capitalization
1. Expenditures for Land
If land is purchased as a site for a structure, interest
costs capitalized during the period of construction are
part of the cost of the plant, not the land.
Conversely, if the company develops land for lot sales,
it includes any capitalized interest cost as part of the
acquisition cost of the developed land.
2. Interest Revenue
In general, companies should not offset interest revenue
against interest cost unless earned on specific borrowings.
Interest Costs During Construction
LO 4
37. 10-37
How do statement users determine the impact of interest capitalization
on a company’s bottom line? They examine the notes to the financial
statements. Companies with material interest capitalization must
disclose the amounts of capitalized interest relative to total interest
costs. For example, Royal Dutch Shell (GBR and NLD) capitalized
nearly 42 percent of its total interest costs in a recent year and provided
the following footnote related to capitalized interest.
WHAT’S YOUR PRINCIPLEWHAT ‘S IN YOUR INTEREST?
LO 4
38. 10-38
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.
After studying this chapter, you should be able to:
Acquisition and Disposition of
Property, Plant, and
Equipment10
LEARNING OBJECTIVES
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.
39. 10-39
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 PROPERTY, PLANT &
EQUIPMENT
LO 5
40. 10-40
Cash Discounts — Discounts for prompt payment.
Deferred-Payment Contracts — Assets purchased on
long-term credit contracts are valued at the present value of the
consideration exchanged.
Lump-Sum Purchases — Allocate the total cost among the
various assets on the basis of their relative fair market values.
Issuance of Shares — The market price of the shares issued
is a fair indication of the cost of the property acquired.
VALUATION OF PP&E
LO 5
41. 10-41
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 Non-Monetary Assets
Companies should recognize immediately any gains or losses on
the exchange when the transaction has commercial substance.
VALUATION OF PP&E
LO 5
42. 10-42
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.
Exchanges of Non-Monetary Assets
ILLUSTRATION 10-10
Accounting for Exchanges
LO 5
43. 10-43
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
Exchanges of Non-Monetary Assets
LO 5
44. 10-44
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.
Exchanges of Non-Monetary Assets
ILLUSTRATION 10-11
Computation of Cost of
New Machine
LO 5
45. 10-45
Equipment 13,000
Accumulated Depreciation—Equipment 4,000
Loss on Disposal of Equipment 2,000
Equipment 12,000
Cash 7,000
Illustration: Information Processing records this transaction as follows:
Loss on
Disposal
Exchanges of Non-Monetary Assets
ILLUSTRATION 10-12
Computation of Loss
on Disposal of Used
Machine
LO 5
46. 10-46
Exchanges—Gain Situation
Has Commercial Substance. Company usually records the
cost of a non-monetary asset acquired in exchange for
another non-monetary asset at the fair value of the asset
given up, and immediately recognizes a gain.
Exchanges of Non-Monetary Assets
LO 5
47. 10-47
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 secondhand 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
Computation of
Semi-Truck Cost
Exchanges of Non-Monetary Assets
LO 5
48. 10-48
Truck (semi) 60,000
Accumulated Depreciation—Trucks 22,000
Trucks (used) 64,000
Gain on Disposal of Trucks 7,000
Cash 11,000
Illustration: Interstate records the exchange transaction as follows:
ILLUSTRATION 10-14
Computation of Gain
on Disposal of Used
Trucks
Gain on
Disposal
Exchanges of Non-Monetary Assets
LO 5
49. 10-49
Exchanges—Gain Situation
Lacks Commercial Substance. Now assume that Interstate
Transportation Company exchange lacks commercial
substance.
Interstate defers the gain of $7,000 and reduces the basis of
the semi-truck.
Exchanges of Non-Monetary Assets
LO 5
50. 10-50
Trucks (semi) 53,000
Accumulated Depreciation—Trucks 22,000
Trucks (used) 64,000
Cash 11,000
Illustration: Interstate records the exchange transaction as
follows:
Exchanges of Non-Monetary Assets
ILLUSTRATION 10-15
Basis of Semi-Truck—
Fair Value vs. Book Value
LO 5
51. 10-51
Summary of Gain and Loss Recognition on
Exchanges of Non-Monetary Assets
ILLUSTRATION 10-16
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.
LO 5
52. 10-52
Government 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
VALUATION OF PP&E
LO 5
53. 10-53
Example 1: Grant for Lab Equipment. AG Company received a
€500,000 subsidy from the government to purchase lab equipment
on January 2, 2015. 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.
Government Grants
LO 5
54. 10-54
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, 2015, are:
Government Grants
ILLUSTRATION 10-17
Government Grant
Recorded as Deferred
Revenue
LO 5
55. 10-55
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, 2015, are:
Government Grants
ILLUSTRATION 10-18
Government Grant Adjusted to Asset
LO 5
56. 10-56
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.
After studying this chapter, you should be able to:
Acquisition and Disposition of
Property, Plant, and
Equipment10
LEARNING OBJECTIVES
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.
57. 10-57
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.
Evidence of future economic benefit would include increases in
1. useful life,
2. quantity of product produced, and
3. quality of product produced.
LO 6
58. 10-58
COSTS SUBSEQUENT TO ACQUISITION
ILLUSTRATION 10-21 Summary of Costs Subsequent to Acquisition LO 6
59. 10-59
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.
After studying this chapter, you should be able to:
Acquisition and Disposition of
Property, Plant, and
Equipment10
LEARNING OBJECTIVES
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.
60. 10-60
DISPOSITION 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.
LO 7
61. 10-61
Illustration: Barret Company recorded depreciation on a machine
costing €18,000 for nine years at the rate of €1,200 per year. If it
sells the machine in the middle of the tenth year for €7,000, Barret
records depreciation to the date of sale as:
Sale of Plant Assets
DISPOSITION OF PP&E
Depreciation Expense (€1,200 x ½) 600
Accumulated Depreciation—Machinery 600
LO 7
62. 10-62
Illustration: Barret Company recorded depreciation on a machine
costing $18,000 for 9 years at the rate of $1,200 per year. If it sells
the machine in the middle of the tenth year for $7,000, Barret
records depreciation to the date of sale. Record the entry to record
the sale of the asset:
Cash 7,000
Accumulated Depreciation—Machinery 11,400
Machinery 18,000
Gain on Disposal of Machinery 400
DISPOSITION OF PP&E
LO 7
63. 10-63
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
64. 10-64
Illustration: Camel Transport Corp. had to sell a plant located on
company property that stood directly in the path of an interstate
highway. Camel received $500,000, which substantially exceeded the
book value of the land of $150,000 and the book value of the building
of $100,000 (cost of $300,000 less accumulated depreciation of
$200,000). Camel made the following entry.
Cash 500,000
Accumulated Depreciation—Buildings 200,000
Buildings 300,000
Land 150,000
Gain on Disposal of Plant Assets 250,000
DISPOSITION OF PP&E
LO 7