Journal entries ma y be ex penditures entries asset

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