Академический Документы
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Zuni Barokah
FEB UGM
2018
Special Issues
1. Interest costs during construction
2. Exchanges of Non-Monetary Assets
3. Impairment
4. Revaluations
Interest Costs
During Construction
$0
Increase to Cost of Asset $?
Capitalize no Capitalize
interest during Capitalize actual all costs of
construction costs incurred during funds
construction
ILLUSTRATION 10.1
Capitalization of Interest Costs
IFRS
LO 2
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1. Qualifying assets.
2. Capitalization period.
3. Amount to capitalize.
LO 2
Qualifying Assets
Require a substantial period of time to get them ready for
their intended use or sale.
LO 2
Capitalization Period
Begins when:
1. Expenditures for the assets are being incurred.
Ends when:
The asset is substantially complete and ready for use.
LO 2
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Amount to Capitalize
Capitalize the lesser of:
1. Actual interest cost incurred.
LO 2
Amount to Capitalize
LO 2
LO 2
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Amount to Capitalize
Interest Rates
Selecting Appropriate Interest Rate:
1. For the portion of weighted-average accumulated expenditures that
is less than or equal to any amounts borrowed specifically to
finance construction of the assets, use the interest rate incurred on
the specific borrowings.
LO 2
Amount to Capitalize
Interest Rates
Shown is the computation of a capitalization rate (weighted-
average interest rate) for debt greater than the amount incurred
specifically to finance construction of the assets.
ILLUSTRATION 10.3
LO 2
Comprehensive Example
LO 2
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Comprehensive Example
LO 2
Comprehensive Example
ILLUSTRATION 10.4
Computation of Weighted-Average Accumulated Expenditures
LO 2
Comprehensive Example
ILLUSTRATION 10.5
Compute the avoidable interest. Computation of
Avoidable Interest
LO 2
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Comprehensive Example
ILLUSTRATION 10.6
Computation of Actual
Interest Cost
The interest cost that Shalla capitalizes is the
lesser of $120,228 (avoidable interest) and
$239,500 (actual interest), or $120,228.
LO 2
Comprehensive Example
LO 2
Comprehensive Example
ILLUSTRATION 10.7
Capitalized Interest
Reported in the Income
Statement
ILLUSTRATION 10.8
Capitalized Interest
Disclosed in a Note
LO 2
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2. Interest Revenue
In general, companies should not offset interest revenue
against interest cost unless earned on specific borrowings.
LO 2
Valuation of PP&E
LO 3
ILLUSTRATION 10.10
Accounting for Exchanges
LO 3
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LO 3
ILLUSTRATION 10.11
Computation of Cost of
New Machine
LO 3
Equipment 13,000
Accumulated Depreciation—Equipment 4,000
Loss on Disposal of Equipment 2,000
Equipment 12,000
Cash 7,000
ILLUSTRATION 10.12
Loss on Computation of Loss
on Disposal of Used
Disposal Machine
LO 3
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LO 3
ILLUSTRATION 10.13
Computation of Semi-
Truck Cost
LO 3
ILLUSTRATION 10.14
Computation of Gain
Gain on on Disposal of Used
Trucks
Disposal
LO 3
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LO 3
ILLUSTRATION 10.15
Basis of Semi-Truck—Fair Value vs. Book Value
LO 3
Compute the total gain or loss on the transaction. This amount is equal to the
difference between the fair value of the asset given up and the book value of
the asset given up.
(a) If the exchange has commercial substance, recognize the entire gain or
loss.
(b) If the exchange lacks commercial substance, no gain or loss is
recognized.
Disclosure include
nature of the transaction(s),
method of accounting for the assets exchanged, and
gains or losses recognized on the exchanges.
LO 3
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LEARNING OBJECTIVE 3
Impairments Explain the accounting
issues related to asset
impairment.
Recognizing Impairments
A long-lived tangible asset is impaired when a company is not
able to recover the asset’s carrying amount either through
using it or by selling it.
LO 3
Recognizing Impairments
ILLUSTRATION 11.15
Impairment Test
LO 3
Recognizing Impairments
Example: Assume that Cruz SA performs an impairment test for
its equipment. The carrying amount of Cruz’s equipment is
€200,000, its fair value less costs to sell is €180,000, and its
value-in-use is €205,000.
ILLUSTRATION 11.15
€200,000 €205,000
No
Impairment
€180,000 €205,000
LO 3
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Recognizing Impairments
Example: Assume the same information for Cruz Company
except that the value-in-use of Cruz’s equipment is €175,000
rather than €205,000.
€20,000 Impairment Loss
ILLUSTRATION 11.15
€200,000 €180,000
€180,000 €175,000
LO 3
Recognizing Impairments
Example: Assume the same information for Cruz Company
except that the value-in-use of Cruz’s equipment is €175,000
rather than €205,000.
€20,000 Impairment Loss
ILLUSTRATION 11.15
€200,000 €180,000
LO 3
Impairment Illustrations
Case 1
At December 31, 2020, Hanoi Ltd. has equipment with a cost of
VND26,000,000, and accumulated depreciation of VND12,000,000. The
equipment has a total useful life of four years with a residual value of
VND2,000,000. The following information relates to this equipment.
1. The equipment’s carrying amount at December 31, 2020, is
VND14,000,000 (VND26,000,000 - VND12,000,000).
2. Hanoi uses straight-line depreciation. Hanoi’s depreciation was
VND6,000,000 [(VND26,000,000 - VND2,000,000) ÷ 4] for 2020
and is recorded.
3. Hanoi has determined that the recoverable amount for this asset at
December 31, 2020, is VND11,000,000.
4. The remaining useful life of the equipment after December 31,
2020, is two years.
LO 3
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Impairment Illustrations
LO 3
Impairment Illustrations
Hanoi Ltd. determines that the equipment’s total useful life has not
changed (remaining useful life is still two years). However, the
estimated residual value of the equipment is now zero. Hanoi
continues to use straight-line depreciation and makes the
following journal entry to record depreciation for 2021.
LO 3
Impairment Illustrations
Case 2
At the end of 2019, Verma Company tests a machine for impairment. The
machine has a carrying amount of $200,000. It has an estimated remaining
useful life of five years. Because there is little market-related information
on which to base a recoverable amount based on fair value, Verma
determines the machine’s recoverable amount should be based on value-
in-use. Verma uses a discount rate of 8 percent. Verma’s analysis
indicates that its future cash flows will be $40,000 each year for five years,
and it will receive a residual value of $10,000 at the end of the five years. It
is assumed that all cash flows occur at the end of the year.
ILLUSTRATION 11.16
Value-in-Use Computation
LO 3
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Impairment Illustrations
Case 2: Computation of the impairment loss on the machine at
the end of 2019.
$33,486 Impairment Loss
ILLUSTRATION 11.15
$200,000 $166,514
Unknown $166,514
LO 3
Impairment Illustrations
Case 2: Computation of the impairment loss on the machine at
the end of 2019.
$33,486 Impairment Loss
$200,000 $166,514
Unknown $166,514
LO 3
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LO 3
Impairments
Cash-Generating Units
When it is not possible to assess a single asset for impairment
because the single asset generates cash flows only in
combination with other assets, companies identify the smallest
group of assets that can be identified that generate cash flows
independently of the cash flows from other assets.
LO 3
Impairments
LO 3
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ILLUSTRATION 11.18
Graphic of Accounting for
Impairments
LO 3
LEARNING OBJECTIVE 5
Revaluations Apply the accounting for
revaluations.
Recognizing Revaluations
Companies may value long-lived tangible asset subsequent to
acquisition at cost or fair value.
Network Rail (GBR) elected to use fair values to account for its
railroad network.
LO 5
Recognizing Revaluation
Revaluation—Land
Illustration: Siemens Group (DEU) purchased land for €1,000,000
on January 5, 2019. The company elects to use revaluation
accounting for the land in subsequent periods. At December 31,
2019, the land’s fair value is €1,200,000. The entry to record the
land at fair value is as follows.
Land 200,000
Unrealized Gain on Revaluation - Land 200,000
LO 5
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Recognizing Revaluation
Revaluation—Depreciable Assets
Illustration: Lenovo Group (CHN) purchases equipment for
¥500,000 on January 2, 2019. The equipment has a useful life of
five years, is depreciated using the straight-line method of
depreciation, and its residual value is zero. Lenovo chooses to
revalue its equipment to fair value over the life of the equipment.
Lenovo records depreciation expense of ¥100,000 (¥500,000 ÷ 5)
at December 31, 2019, as follows.
LO 5
Recognizing Revaluation
Revaluation—Depreciable Assets
After this entry, Lenovo’s equipment has a carrying amount of
¥400,000 (¥500,000 - ¥100,000). Lenovo receives an independent
appraisal for the fair value of equipment at December 31, 2019,
which is ¥460,000.
LO 5
Recognizing Revaluation
Revaluation—Depreciable Assets
ILLUSTRATION 11.22
Financial Statement
Presentation—Revaluations
LO 5
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Recognizing Revaluation
Revaluations Issues
Company can select to value only one class of assets, say
buildings, and not revalue other assets such as land or equipment.
If a company selects only buildings,
► revaluation applies to all assets in that class of assets.
► A class of assets is a grouping of items that have a similar
nature and use in a company’s operations.
► Companies must also make every effort to keep the assets’
values up to date.
LO 5
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