Review 10-12 - Chapter 10 PPE are valued at their...

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Chapter 10 PPE are valued at their historical cost, measured by the cash or cash equivalent price of obtaining the asset and bringing it to the location and condition necessary for its intended use. Self-Constructed Assets It should be noted that the cost recorded for a constructed asset can never exceed the price charged by an outside producer. Interest Costs The amount of interest to capitalize is limited to the lower of (a) actual interest cost incurred during the period or (b) the amount of interest cost incurred during the period that theoretically could have been avoided if the expenditure for the asset had not been made (avoidable interest). Exchanges of PPE The following steps may be used to account for nonmonetary exchanges. 1. Compute the net book value (carrying value) of the old asset. This is equal to original cost minus accumulated depreciation on the date of exchange. 2. Compute the realized gain or loss. This is equal to the difference between the fair market value (FMV) and the net book value of the old asset on the date of exchange. 3. Determine the gain or loss to be recognized. 4. Prepare the journal entry to record the exchange. This entry involves the following: a. Remove the cost and accumulated depreciation of the old asset from the books. b.
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This note was uploaded on 05/25/2011 for the course ACCY 331 taught by Professor Madlinger,l during the Spring '08 term at Northern Illinois University.

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Review 10-12 - Chapter 10 PPE are valued at their...

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