Wiley CPAexcel Exam Review 2014 Focus Notes: Financial Accounting and Reporting

Focus on: Fixed Assets—Module 11

PROPERTY, PLANT, AND EQUIPMENT

General Rule

Capitalized amount = Cost of asset + Costs incurred in preparing it for its intended use

Cost of asset = Fair market value (FMV) of asset received or

Cash paid + FMV of assets given

Gifts:

Asset (FMV)	xx
Income	xx

Other capitalized costs for assets acquired by gift or purchase:

Shipping

Insurance during shipping

Installation

Testing

Land and Building

Total cost:

• Purchase price
• Delinquent taxes assumed
• Legal fees
• Title insurance

Allocation to land and building—Relative Fair Market Value Method

FMV of land

+ FMV of building

= Total FMV

Land = FMV of land ÷ Total FMV × Total cost

Building = FMV of building ÷ Total FMV × Total cost

Capitalization of Interest

Capitalize on:

• Assets constructed for company’s use
• Assets manufactured for resale resulting from special order

Do not capitalize on:

• Inventory manufactured in the ordinary course of business

Interest capitalized:

• Interest on debt incurred for construction of asset

Interest on other debt that could be avoided by repayment of debt

Computed on:

• Weighted-average accumulated expenditures

Costs Incurred After Acquisition

Capitalize if:

• Bigger—The cost makes the asset bigger, such as an addition to a building
• Better—The cost makes the asset better, such as an improvement that makes an asset perform more efficiently
• Longer—The cost makes the asset last longer, extends the useful life

Do not capitalize:

Repairs and maintenance