journal entries ma y be: Ex penditures entries : Asset Cash xx xx Interest ca pitalization entr y: Asset Interest expense Cash xx xx xx Total cost of constructed asset = Total actual expenditures (cost) + interest capitalized Interest ca pitalization (Qualif yin g asset ): ( I ) Avoidable interest = WAAE x appropriate interest rate (s) Important Note ▪ Interest capitalized = lower amount between – interest revenue earned on avoidable and actual interest specific borrowing (if any) S pecial case for avoidable interest NO s pecific debt mentioned Situation (1 ): Onl y one General debt existed Avoidable interest = WAAE x rate of general debt Situation (2 ): General debts existed Avoidable interest = WAAE x W.A. interest rate ( II ) Actual interest (on all debt ) Interest Capitalized Actual Interest Difference Expenditure
B Capital accounting learning Intermediate accounting 3 Final revision – Part one – Chapter (10&11) Summary – Second grade – second term – 2019/2020 – B capital - Bahaa Taha Cost of fixed (tangible) asset = Net purchase prices (Regardless discount is taken or not) + any necessary expenditures to make asset ready for use Cost of fixed (tangible) asset = Cash equivalent price (if determinable) [ Present value of note + down payment (If any)] + any necessary expenditures to make asset ready for use Cost of fixed (tangible) asset = Fair (market) of shares issued [ No. of shares issued x fair (market) value per share] + any necessary expenditures to make asset ready for use Purchasing a group assets at single price (lump – sum price) The single price (lump – sum price) should be allocated to individual assets according to Fair (market) value ratio. Solution ste ps: 1 st : Com pute F.V. ratio: Asset F.V. F.V. ratio Land Build Equip. XX XX XX XX XX XX Total F.V. XX 2 nd : Allocate lum p – sum price: Land = lump sum x F.V. ratio of land Building = lump sum price x F.V. ratio of building Equipment = lump sum price x F.V. ratio of equip. (1 ) Cash discount : Purchase price x discount rate complementary F.V. of asset Total F.V (4 ) Lum p-sum purchase : (3 ) Issuance of shares (stocks ): Means purchasing a fixed (tangible) asset by issuing the company own Shares (stocks) or by issuing another company shares acquired as investment. Cash discount (taken or not) and trade discount (if an y) should be deducted (2 ) Deferred pa yment contracts (NP ): Means the company acquired a fixed asset through long term credit (By issuing a note payable) II -Valuation :
B Capital accounting learning Intermediate accounting 4 Final revision – Part one – Chapter (10&11) Summary – Second grade – second term – 2019/2020 – B capital - Bahaa Taha Asset (new) Accumulated depreciation Cash (received) Loss on disposal Asset (old) [cost] Cash (paid) Gain on disposal XX XX XX XX XX XX XX Exchan ge of non-monetar y assets 2 - Gain or loss = Fair value old asset – Book value old asset (Given up) [cost – acc. Dep.] (Given up) 3 - Cost of new (received) asset = Fair value old (given up) asset + Cash paid OR – Cash received » Journal entr y: 1 - Cash paid or received = Fair value old (given up) asset – Fair value new (received) asset [ If : + cash received ] or [ If : – cash paid ] » Ste
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