F3 - PP&E Cost Basis

Question 1

Costs of Plant/Buildings:

Answer 1

• Purchase Price
• All repair charges neglected by previous owner(deferred maintance)
• Alteration and improvements
• Architects fees
• Possible addition of construction period interest
• digging a hole for the foundation

Question 2

Costs of Equipment:
expenditures related to acquisiton or construction of equip.

Answer 2

• invoice price (cost)
• less cash discounts and other
• Add freight in (and insurance while on transit and while in construction)
• Add installation charges (including testing and perparation for use)
• Add sales and federal excise taxes
• possible additon of consturction period interest

Question 3

Cost of LAND

Answer 3

• Cost of land
• cost to raze a building
• minus crap material sale
• excabtation cost is NOT INCLUDED

Question 4

What factor must be present to use the units-of-production (activity) method of depreciation?

Answer 4

Total units to be produced can be estimated.

Answer 5

• 2 X 1/N X (Cost - Accumlated Depreciation)
• no salvage value deducted
• we keep reducing the cost by the acc dep every year it changes and it goes down till we have the salvage value amount
• also the 2/N (stays the same every year)