F4 - Fixed Assets, Depreciation

Front 1

Classification of Fixed Assets (PPE)

Back 1

Land (Property)

Buildings (Plant)

Equipment

Accumulated Depreciation (contra-asset)

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Valuation of Fixed Assets GAAP

Back 2

historical cost aka purchase price

Front 3

Donated fixed assets JE

Back 3

Fixed asset (FMV)

Gain on non-reciprocal transfer

*unusual and infrequent nature

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2 Methods of Valuation of Fixed Assets IFRS

Back 4

1)Cost method (GAAP)

2)Revaluation Method

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Revaluation Method (IFRS)

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A class of fixed assets is revalued to fair value and reported on the books

Revaluation model carrying value=FV at revaluation - subsequent acc dept - subsequent impairment

Recognize Revaluation Loss (IS), Gain (OCI), Impairment (OCI-IS)

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Cost of Equipment

Back 6

Invoice price

Less cash/other discounts

Freight-in

Installation charges (testing, and necessary prep)

Sales and federal excise taxes

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Accounting for Additions (increase quantity in FA)

Back 7

Capitalize

Fixed Asset
Cash/AP

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Accounting for Improvements and Replacements

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Capitalize

a) if carrying value of old asset it known, recognize gain or loss

b) if unknown

-increase usefulness - capitalize

-increase life - reduce Accumulated Depreciation

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Accounting for Repairs

Back 9

1) if ordinary - expense
2) if extraordinary - capitalize (treat as addition, improvement, replacement)

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Cost of Land

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Purchase price and all costs up to excavation

- broker's fee

- title and recording fee

- legal fees

- demolishing of old building less proceeds from sale of the building

- site development (filling and leveling)

- clearing of trees

- existing obligations assumed by buyer of land (mortgage, back taxes)

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Land Improvements

Back 11

depreciable additions to Land

- fences

- sidewalks

- paving

- landscaping

- lighting

- interest costs incurred during construction (weighted average of accumulated expenditure)

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Cost of Buildings

Back 12

Excavation forward

- purchase price

- repairs

- improvements

- architect's fees

- digging a hole for foundation

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Investment Property (IFRS)

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land or building held by an entity or by a lessee under a finance (capital) lease to earn rentals or for capital appreciation; can be under construction or development

Purchase price + expenses directly related to purchase (legal, professional fees, taxes)

Capitalize subsequent costs except those ordinary or minor

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Investment Property Measurement Models (IFRS)

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1) Cost Model - historical cost less acc depr, disclose fair value of property

2) Fair Value Model - fair value and NO DEPRECIATION. remove when sold or disposed. Revalue regularly and recognize G/L

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Computing Capitalized Interest Cost

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weighted average of accumulated expenditure (capitalize interest on money actually spent)

- rate on specific construction loan

- rate on general debt for excess expenditure

*subtotal is computed capitalized interest (avoidable interest)

cannot exceed actual interest costs incurred

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Depreciation Method choice under IFRS

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has to be appropriate to the method of consumption of the asset and reviewed for appropriateness at each balance sheet date.

Component depreciation is required

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Component Depreciation

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depreciation is calculated for each component of asset if it has different useful life from each other.

Required method under IFRS

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Composite (dissimilar asset) or Group (similar assets) DEpreciation

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Averaging the economic lives of a number of units and depreciating the whole class over a single life

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Straight Line Depreciation

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Depreciable base/estimated useful life= depreciation expense

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Depreciable base

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cost-salvage value

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Net Book Value

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Cost - Accumulated Depreciation

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Sum of the Years digits denominator calculation (SYD)

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n (n+1) / 2

n - useful life

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SY Depreciation expense

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(Cost - Salvage) * remaining life of asset / SYD

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Double Declining Balance Method

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2 * 1/N * NBV = Depreciation expense

NBV = cost - accumulated depreciation

* adjust the NBV for each year

*last year's depreciation is a "plug" because

Accumulated Depreciation cannot exceed (Cost-SV)

150% DB would be 1.5/N

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Units of Production

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(Cost - salvage)/Estimated units or hours = Rate per unit or hour

Rate * #units produced(hours worked)=depreciation expense

becomes a variable cost

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Sale of an asset JE

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Dr. Cash received from Sale

Dr. Accumulated Depreciation to Date

Dr. Loss on Sale

Cr. Sold asset at cost

Cr. Gain on Sale

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Write-off fully depreciated asset

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Accumulated Depreciation (100%)

Asset at full cost (100%)

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total and permanent impairment of fixed asset

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Accumulated Depreciation per records

Loss due to impairment (PLUG)

Asset at full cost

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Depletion

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allocation of cost of natural resources: oil, gas, timber, minerals to the production costs (raw materials for example)

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Purchase cost of natural resources

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Purchase cost

+ cost of preparing the land for removal (drilling, building mines, tunnels) or prepare asset for harvest

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Depletion base

Back 31

Cost - residual value

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Cost Depletion (GAAP)

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Depletion base / Current estimated recoverable units = unit depletion rate

unit depletion rate * units extracted = depletion expense

unit depletion rate * units sold = COGS

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Depletion on land (REAL property)

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REAL property

Residual value (subtract)

Extraction/development cost

Anticipated restoration cost

Land purchase price

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Calculating inventory using Retail Method (General Rules)

Back 34

Column for Cost, Column for Retail

- ending inventory at retail

- ending inventory at retail * cost to retail ratio = ending inventory at cost