Acquisition and Disposition of Property, Plant and Equipment pdf ACQUISITION AND DISPOSITION OF PROPERTY, PLANT AND EQUIPMENT ACT-458 PROPERTY,

Interest revenue earned on specific borrowings for qualifying assets a. Reduces the cost of the qualifying https://accounting-services.net/ asset. Reduces interest expense reported on the income statement. Increases equity in the period earned.

Expenses will be higher and net income lower if the grant is accounted for as an adjustment to the asset. Depreciation expense will be higher if the grant is recorded as deferred revenue, but net income will be the same under the two alternatives.

Ac341, Chapter 10, Property Plant & Equipment & Intangible Assets: Acquisition And Disposition

Day Football Co. had a player contract with Simms that is recorded in its books at $4,500,000 on July 1, 2007. On this date, Gray traded Vance to Day for Simms and paid a cash difference of $450,000. The fair value of the Simms contract was $5,400,000 on the exchange date. The exchange had no commercial substance. After the exchange, the Simms contract should be recorded in Gray’s books at a. $4,050,000.

• Thus, it recognizes a gain.
• Recognizing gains on non-monetary exchanges.
• Its advocates say that all costs necessary to get an asset ready for its intended use, including interest, are part of the asset’s cost.
• Property, plant, and equipment items are always acquired at their original historical cost.

C 64. Capital expenditure. D 65.

Acquisition and Disposition of Property Plant and Equipment

Determine cost of land used as a parking lot. Determine cost of machinery. Classification of fences and parking lots.

The period of time during which interest must be capitalized ends when a. The asset is substantially complete and ready for its intended use. No further interest cost is being incurred. The asset is abandoned, sold, or fully depreciated. The activities that are necessary to get the asset ready for its intended use have begun. Fences and parking lots are reported on the balance sheet as a.

Property, Plant, & Equipment Schedule

The total interest cost actually incurred. A cost of capital charge for stockholders’ equity. That portion of total interest cost which would not have been incurred if expenditures for asset construction had not been made.

• PP&E are a company’s physical assets that are expected to generate economic benefits and contribute to revenue for many years.
• Deposits on machinery not yet received.
• Total expenditures for the asset in 2007.
• The termination of an asset’s service as a result of some type of unwanted or unexpected event, such as fire, flood, theft, or condemnation.
• Average accumulated expenditures were $8,000,000, actual interest was $1,200,000, and avoidable interest was $600,000.

An asset disposal may require the recording of a gain or loss on the transaction in the reporting period when the disposal occurs. For the purposes of this discussion, we will assume that the asset being disposed of is a fixed asset. On May 1, 2010, Goodman Company began construction of a building. Expenditures of $120,000 were incurred monthly for 5 months beginning on May 1.

Acquisition AND Disposition OF Property, Plant, AND Equipment Chapter 10 Solution

It receives in exchange a machine with a fair value of $90,000 plus cash of $10,000. Illustration 3-17 shows calculation of the total gain on the exchange. To illustrate, Interstate Transportation Company exchanged a number of used trucks plus cash for a semi-truck. The used trucks have a combined book value of $42,000 (cost $64,000 less $22,000 accumulated depreciation). Interstate’s purchasing agent, experienced in the second-hand market, indicates that the used trucks have a fair market value of $49,000. In addition to the trucks, Interstate must pay $11,000 cash for the semi-truck.

Property, plant, and equipment are also called fixed assets, meaning they are physical assets that a company cannot easilyliquidate or sell. PP&E assets fall under the category of noncurrent assets, which are the long-term investmentsor assets of a company.

However, it is possible to exchange similar assets but not have a significant difference in cash flows. That is, the company is in the same economic position as before the exchange.

The building was completed and ready for occupancy on September 1, 2010. For the purpose of determining the amount of interest cost to be capitalized, the average accumulated expenditures on the building during 2010 were a. $100,000. $120,000. $480,000. $600,000.

D 155. A 156. The other major component of the PP&E formula is depreciation. The depreciation expense Disposition of Property, Plant, and Equipment is used to reduce the value of the net balance and it flows to the income statement as an expense.

The entry at the end of the second year to record interest and principal payment is as follows. Interest Revenue. Companies frequently borrow money to finance construction of assets. GAAP requires the third approach—capitalizing actual interest . Below is a portion of Exxon Mobil Corporation’squarterly balance sheet as of September 30, 2018.

B 149. Others argue that companies should report donations as revenues from contributions. Their reasoning is that only the owners of a business contribute capital.