F-4 FIXED ASSETS

Question 1

Q: Give some examples of capitalizable costs for:

• Acquisition of equipment
• Acquisition of building

FAR 2-27

Answer 1

Acquisition of Equipment

• Purchase price, freight-in, installation, testing, taxes, less any cash discounts allowed.*

Acquisition of Building

• Purchase price, deferred maintenance, alterations, improvements, architect’s fees.*

*If equipment or building is constructed by company, capitalized cost could include construction period interest.

Question 2

Q: How is fixed-asset carrying value computed under U.S. GAAP and IFRS?

FAR 4-26

Answer 2

U.S. GAAP

• Carrying Value = Historical Costs – Accumulated Depreciation – Impairment.

IFRS

• Under IFRS, carrying value can be calculated using the U.S. GAAP method above or can be calculated using the revaluation model.
• Revaluation Model Carrying Value = Fair Value on Revaluation Date – Subsequent Accumulated Depreciation – Subsequent Impairment
• Revaluation gains are reported in OCI.
• Revaluation losses are reported on the income statement.

Question 3

Q: Describe the proper accounting for ordinary versus extraordinary repairs.

FAR 4-29

Answer 3

• Ordinary repairs are expensed as repair and maintenance.
• They do not increase the life or utility of the asset.
• Extraordinary repairs either increase the life or utility of the asset.
• If the extraordinary repair increases the life of the asset, it is recorded by reducing accumulated depreciation.
• If the extraordinary repair increases the utility of the asset, it is capitalized to the fixed asset account.