AFM291-ch10 - andEquipment ,Plant Chapter 10 AFM 291...

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AFM 291 chapter 10 1     Chapter 10 Chapter 10                       Acquisition of Property, Plant,  Acquisition of Property, Plant,                                                                                           and Equipment                                                                                          and Equipment
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AFM 291 chapter 10 2 Also known as: tangible capital assets, plant assets, fixed assets Major characteristics include: 1. Acquired for use in operations and not for resale 2. Long-term in nature and usually subject to depreciation 3. Possess physical substance Property, Plant, and Equipment
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AFM 291 chapter 10 3 Acquisition Cost Historical cost is the usual basis for determining cost Historical cost includes: the asset’s cash or cash equivalent price, and the cost of readying the asset for its intended use (e.g., freight costs, installation costs) Costs incurred after acquisition are: added to the asset’s cost, if they increase future service potential, or expensed, if they do not add to the asset’s original service potential
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AFM 291 chapter 10 4 Asset Components Both IFRS and private entity GAAP require componentization , although IFRS guidance is more detailed Components of a single asset (e.g. roof of a building) should be recognized separately if they make up a relatively significant portion of the asset’s total cost Significant professional judgment is required in applying componentization, and other factors to consider include differing useful lives and differing patterns of economic benefits
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AFM 291 chapter 10 5 Cost Elements Capitalized cost of property, plant, and equipment includes all expenditures needed to: acquire the asset (purchase price, net of discounts and rebates) bring it to its location and to state where it is ready for use (including delivery, site preparation, installation, assembly, professional fees, etc) discharge obligations associated with asset’s eventual disposal (e.g. site restoration) IFRS and ASPE (private entity GAAP) share the above approach, but sometimes differ in specific application
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AFM 291 chapter 10 6 Cost of Land Land costs include: 1. Purchase price 2. Closing costs (title, legal, and recording fees) 3. Costs of getting land ready for use (removal of old buildings, clearing, grading, filling, etc.) Sale of salvaged materials reduce cost of land 4. Assumption of liens or encumbrances 5. Additional improvements with an indefinite life Special assessments for local improvements (e.g. pavements) part of land cost Sale of salvaged materials reduces cost of land
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AFM 291 chapter 10 7 Land Improvements Permanent improvements to the land such as landscaping are added to the Land account (see Cost of Land slide).
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