Acguisition and Valuation of PP&E Self-Constructed Assets Costs typically include: (1)Materials and direct labor (2)Overhead can be handled in two ways: 1.Assign no fixed overhead 2.Assign a portion of all overhead to the construction process. Companies use the second method extensively. Chapter 10-11 LO 3 Describe the accounting problems associated with self-constructed assets
Chapter 10-11 Self-Constructed Assets Acquisition and Valuation of PP&E Costs typically include: (1) Materials and direct labor (2) Overhead can be handled in two ways: 1. Assign no fixed overhead 2. Assign a portion of all overhead to the construction process. Companies use the second method extensively
Acquisition and Valuation of PP&E Interest Costs During Construction Three approaches have been suggested to account for the interest incurred in financing the construction. $0 Increase to Cost of Asset $? Capitalize no Capitalize interest Capitalize actual all costs of during costs incurred funds construction during construction (with modification) Illustration 10-1 GAAP Chapter 10-12 LO 4 Describe the accounting problems associated with interest capitalization
Chapter 10-12 Three approaches have been suggested to account for the interest incurred in financing the construction. Interest Costs During Construction Acquisition and Valuation of PP&E Illustration 10-1
Acguisition and Valuation of PP&E Interest Costs During Construction GAAP requires-capitalizing actual interest (with modification). Consistent with historical cost -all costs incurred to bring the asset to the condition for its intended use. Capitalization considers three items: 1.Qualifying assets. 2.Capitalization period. 3.Amount to capitalize. Chapter 10-13 LO 4 Describe the accounting problems associated with interest capitalization
Chapter 10-13 GAAP requires — capitalizing actual interest (with modification). Consistent with historical cost — all costs incurred to bring the asset to the condition for its intended use. Capitalization considers three items: 1. Qualifying assets. 2. Capitalization period. 3. Amount to capitalize. Interest Costs During Construction Acquisition and Valuation of PP&E
Acguisition and Valuation of PP&E Qualifying Assets Require a period of time to get them ready for their intended use. Two types of assets: Assets under construction for a company's own use. Assets intended for sale or lease that are constructed or produced as discrete projects. Chapter 10-14 LO 4 Describe the accounting problems associated with interest capitalization
Chapter 10-14 Require a period of time to get them ready for their intended use. Two types of assets: Assets under construction for a company ’s own use. Assets intended for sale or lease that are constructed or produced as discrete projects. Qualifying Assets Acquisition and Valuation of PP&E
Acguisition and Valuation of PP&E Capitalization Period Begins when: 1.Expenditures for the asset have been made. 2.Activities for readying the asset are in progress. 3.Interest costs are being incurred. Ends when: The asset is substantially complete and ready for use. Chapter 10-15 LO 4 Describe the accounting problems associated with interest capitalization
Chapter 10-15 Capitalization Period Acquisition and Valuation of PP&E Begins when: 1. Expenditures for the asset have been made. 2. Activities for readying the asset are in progress . 3. Interest costs are being incurred. Ends when: The asset is substantially complete and ready for use