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Sell Soon Inc. should account for the one million dollar cost of disposal by capitalizing the cost. According to EITF issue No. 90-8 “Costs should be capitalized if the costs are incurred in preparing for sale that property currently held for sale.” So, in this case we are told in the case that “held for sale” criteria in paragraph 30 of FASB statement No. 144 are met. In order to dispose the Houston facility Sell Soon Inc. has to incur different costs to get the facility ready for sale. More over, Sell Soon Inc. has met the following criteria that are outlined in FASB 144. If a long lived asset is to be disposed of by sale and the property is classified as “held for sale” these criteria has to be met: management commits to plan to sell the asset, management commits to plan to sell the asset, in this case management at Sell Soon Inc is committed to sell this asset, the asset is available for immediate sale in its present condition,
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Sale is probable within one year, in this case yes; disposal is expected to occur in nine months. The asset is being actively marketed for a reasonable price and it is unlikely that the plan to sell will be changed. All the criteria listed above, which is the criteria set by FASB No. 144 has been met in this case and the asset is classified as “held for sale” so Sell Soon Inc cannot depreciate the Houston facility. The one million dollar “cost to sell” the company will be incurring before hand might include advertisement costs to sell the facility, property tax and other costs to improve or get the property ready for sale. Also, these costs could include incremental direct costs to transact the sale such as broker commissions, legal and title transfer …show more content…
In such a case, the asset will be classified as “held and used” instead of “held for Sale” until it is disposed of by Sell Soon Inc. The Houston facility stays in property plant and equipment and depreciation estimates will be revised to reflect shortened life. Depreciation ends and a gain or loss is recorded when the property is disposed of by Sell Soon Inc. The one million dollar spent to get the property ready for sale now will be expensed out as
Sale is probable within one year, in this case yes; disposal is expected to occur in nine months. The asset is being actively marketed for a reasonable price and it is unlikely that the plan to sell will be changed. All the criteria listed above, which is the criteria set by FASB No. 144 has been met in this case and the asset is classified as “held for sale” so Sell Soon Inc cannot depreciate the Houston facility. The one million dollar “cost to sell” the company will be incurring before hand might include advertisement costs to sell the facility, property tax and other costs to improve or get the property ready for sale. Also, these costs could include incremental direct costs to transact the sale such as broker commissions, legal and title transfer …show more content…
In such a case, the asset will be classified as “held and used” instead of “held for Sale” until it is disposed of by Sell Soon Inc. The Houston facility stays in property plant and equipment and depreciation estimates will be revised to reflect shortened life. Depreciation ends and a gain or loss is recorded when the property is disposed of by Sell Soon Inc. The one million dollar spent to get the property ready for sale now will be expensed out as