LN - PPE Ch 10 and 11

LN - PPE Ch 10 and 11 - Ch 10 and Ch 11: Property, Plant...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Ch 10 and Ch 11: Property, Plant and Equipment ACCT 401, SP 11 1. FEATURES OF PPE: 1) Definition : long-lived, revenue-producing assets of a durable nature. 2) Examples: land, building, equipment, machinery, etc. also includes natural resources, such as oil deposits, mineral deposits and timber. three characteristics: A) Used in operations and are not acquired for resale. B) Are long-term in nature and are usually depreciated. C) Have physical substance. 2. Historical cost represents acquisition cost, which includes the Fair Market Value (FMV) of obtaining the asset and all expenditures necessary to bring the asset to its desired condition and location for use. Assets can be acquired in several ways: self-construction, purchase or exchange. Therefore, to determine the acquisition cost at the acquisition date depends: Purchased Assets Self-Constructed Assets Fair Market Value (FMV) on the acquisition date of what you bought OR FMV of what you gave up, whichever is clearer . Costs to build the asset, including interest capitalization.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Ch 10 and Ch 11: Property, Plant and Equipment ACCT 401, SP 11 3. Self –Constructed Assets – This situation exists when a company decides to build an asset for its own use rather than buy one. a.i.1.A.a.1) Example : Sam’s Club decides to build a new warehouse rather than buy an existing one a.i.1.A.a.2) Without a purchase price or a contract price, the company must allocate costs and expenses to arrive at the acquisition cost of the self-constructed assets. A) Direct materials B) Direct labor C) Indirect costs/overhead D) Capitalized interests during construction a.i.1.A.a.3) Interest costs during construction: A self-constructed asset takes time to get it ready for use. During the time that the asset is not operational, the company is financing its construction and incurring interest charges. A) The interest costs should be capitalized (included in the asset’s cost) for qualifying assets. The rationale for this treatment is that ____________ __________________________________________________________________ B) Qualifying assets are: assets built for a company’s own use and assets constructed as discrete projects for sale or lease. C) The amount of interest capitalized is the portion of interest that could be avoided if the asset was not constructed. Average accumulated expenditures approximate the average debt necessary for construction. a. A weighted average (WA) expenditure is calculated because not all expenditure will be made at beginning of construction period. b.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 25

LN - PPE Ch 10 and 11 - Ch 10 and Ch 11: Property, Plant...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online